Toyota and Honda’s 1980s success story may not be repeated by China’s electric car giants, researchers say: Why the flying geese won’t fly as much this time – Toyota Motor (NYSE:TM), Honda Motor Co (NYSE:HMC)

China’s thriving electric vehicle industry may not be able to replicate the offshoring strategy that helped Toyota Motor Corp TM And Honda Motor Co Ltd HMC achieve worldwide success, says one expert.

What happened: Alicia Garcia-Herrerosenior research associate at the Brussels-based economic think tank Bruegeland Chief Economist for Asia-Pacific at the investment bank Natixis in Hong Kong, wrote an opinion article for Nikkei Asia on Tuesday.

She pointed out that the offshoring strategy that helped Japanese automakers in the 1980s may not be as effective for China’s electric car industry.

Garcia-Herrero explained that the success of China’s electric vehicle industry was due to a combination of factors, including industrial policy, hard work, a competitive environment and technology transfer from foreign companies. But she warned that the industry faces growing risks, including protectionism and a potential delay in countries’ decarbonization paths.

Post-COVID subsidy cuts and a sluggish economic recovery have shifted the focus to exports, Garcia-Herrero said, with Chinese EV exports increasing 22% in 2023, compared to a 2.7% increase in 2019.

She noted that the offshoring strategy that helped Japanese automakers in the 1980s may not be as effective for China’s electric car industry for several reasons. First, labor costs in Japan in the 1980s were much higher than they are in China today, making outsourcing production more attractive for Japanese automakers.

Second, China is currently suffering from a lack of jobs and high youth unemployment, while Japan had full employment and an overheated labor market. Third, China’s ecosystem in terms of suppliers and trade infrastructure, together with numerous trade agreements, makes it easier for the country to export, perhaps even more so than it was for Japan in the 1980s.

Finally, China faces protectionism when building factories in other countries, limiting the choice of markets in which it can enter.

“It would be cheaper and more efficient for China to produce abroad, but geopolitical reasons militate against the offshoring argument. All in all, it seems that China’s ‘flying geese’ will fly less than Japan’s did in the 1980s, at least for now,” Garcia-Herrero wrote.

See also: What will happen to Lucid Group stock on Tuesday?

Why it is important: China’s electric vehicle industry has faced a number of challenges recently. The European Union, China’s largest export market for electric vehicles, recently imposed countervailing tariffs on Chinese electric vehicles, citing unfair government subsidies as the reason. This move faced strong opposition from China, which vowed to take all necessary measures to protect its electric vehicle industry.

On the other hand, the European Union reduced tariffs on electric cars from Tesla Inc. TSL in China, where they are significantly lower than those for other electric car manufacturers. This move could potentially reshape the electric car market in the region.

Earlier this year, Japanese automakers Toyota and Nissan entered into a partnership with Chinese technology giants. Tencent And baidu to improve its artificial intelligence capabilities in China. However, this move was overshadowed by a certification scandal that also affected other Japanese automakers.

Read more:

Image via Shutterstock

This story was created with Benzinga Neuro and edited by Kaustubh Bagalkote