The coronavirus pandemic is the least of the problems facing Japan’s carmakers. They have benefited from a sales boost amid the pandemic. They must now contend with much bigger threats: earthquakes and extreme weather.
Earthquakes — depicted by Edo printmakers as a restless catfish under Japan — are unconnected to climate change. Extreme weather, in contrast, is a reflection of a crisis caused by humans. This is creating long chains of consequences that Japanese carmakers are struggling to cope with.
This winter, the severity of cold spells has intensified. For Toyota, Japan’s biggest carmaker, the deadly Texas winter storm has had a serious impact. A power crisis forced it to halt production at US plants, including those in Texas, Indiana and Kentucky. The Texas factory lost access to water supplies. Peers Nissan and Honda have suffered production halts in their US plants too.
The timing is particularly bad because an earthquake in north-eastern Japan has disrupted Toyota’s operations at home. Production from 14 assembly lines, including those producing models for the upmarket Lexus brand, will be shut this week for up to four days. Last year’s output figures suggest this will result in a production loss of up to 20,000 cars.
A worse blow may fall in coming days. Like the US, Japan has been facing its own share of climate change effects. After a long cold spell, the local meteorological agency has issued warnings of snowstorms for the next few days. Blizzard conditions are expected to be the worst in several years.
Japan’s electricity grid, which had reached its limits before the magnitude 7.3 earthquake that hit over the weekend, will be put to the test once again. Many local power generation companies have only just restarted operation of affected units. Others, such as Japan Petroleum Exploration, are still dealing with shutdowns. Disruption could have an impact on the automotive supply chain.
Steel producers and chipmakers, including Renesas, the main local supplier of automotive chips, have also shut down plants because of the earthquake.
Production at local automakers was affected for about a month following the 2011 earthquake and tsunami, largely due to a shortfall of chip supply from Renesas.
Chips were already in short supply. Toyota is better positioned than local peers, with a four-month buffer of semiconductors in its inventory. But that will not be enough to last it through the prolonged global chip crisis.
Japanese carmakers need to transition more swiftly to making electric vehicles. But at the same time, the vehicles still depend heavily, albeit indirectly, on hydrocarbons when charged in Japan.
With nearly half of the country’s reactors scheduled to be decommissioned, about 70 per cent of total electricity generation comes from hydrocarbons. That gives Japanese carmakers an excuse to drag their feet.
Toyota shares have risen about 40 per cent from their March low, pricing in the sales recovery in the second half of last year and record operating margins of 12.1 per cent in the fourth quarter. The stock may now be nearing a short-term peak as the ripple effects of shutdowns — at suppliers and on its own plants — start trickling in.
Enjoy the rest of your week,
June YoonLex writer