Bloomberg Businessweek

 ECONOMICS Bloomberg Businessweek August 20, 2018

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DATA: AICHI PREFECTURE’S SURVEY OF MANUFACTURERS

○ Auto suppliers in Aichi are bracing for the

eventual demise of the combustion engine

Electric Cars

Threaten Japan’s

Industrial Heartland

THE BOTTOM LINE Uncertainty over the future of the U.K.-EU

relationship is depressing investment by Bournemouth’s services

industries, while foreign talent is harder to come by.

The uncertainty is making it diicult for com-

panies in Bournemouth to plan. Matt Desmier, a

self-employed consultant who used to organize a

“Silicon Beach” festival for digital startups in the

area, canceled this year’s event after sponsors pulled

funding. His own income has dropped by half since

the referendum, because companies are much less

willing to allocate money toward external expertise.

“People are waiting,” he says. “They’re spending the

bare minimum that they have to because they have

no idea what’s going to happen next.”

Tobias Ellwood, a Conservative Party lawmaker

representing Bournemouth East who’d pushed

for the U.K. to stay in the EU, says the city can’t

aford to stand on the sidelines while things get

sorted out. During an interview at an area restau-

rant, where waiters wearing sunglasses circulate

with plates of crabcakes and oysters, Ellwood says

Bournemouth should do more to tout itself as an

attractive location for British businesses that may

be priced out of the capital. “It’s as easy to ly from

London to Barcelona as it is to go from London

to Bournemouth,” he says. “So we need to keep

ourselves on the map, we need to make ourselves

relevant.” —Jill Ward, with Neil Callanan

Tetsuya Kimura is nervous. The company he runs,

which makes engine parts, was already in an end-

less cycle of cost-cutting to stay competitive. Then

last fall the head of his biggest client, Toyota Motor

Corp. President Akio Toyoda, began warning that a

“once-in-a-century” upheaval threatens the indus-

try’s very survival.

Toyoda wasn’t talking about President Trump’s

trade war, though that risk looms as well. He was

warning about ride-sharing, electric cars, and

driverless vehicles, all troubling innovations for

anyone whose living depends on the combustion

○ Manufactured goods

shipped from Japan’s

Aichi prefecture in 2016

Transportation

equipment

56%

Machinery

9%

Steel

products

5%

Other

30%

engine. Japan’s government added pressure last

month with the announcement that it wants man-

ufacturers to stop building conventional cars by

205 0. While that’s a distant date, China—the world’s

biggest car market—already has a goal of 1 in 5 vehi-

cles running on batteries by 2025.

The issue for Japan’s Aichi prefecture, where

Toyota and hundreds of suppliers including

Kimura’s Asahi Tekko Co. are located, is that elec-

tric vehicles use about a third fewer parts than

today’s average car. Here’s a sample of what you

won’t ind in an EV: spark plugs, pistons, cam-

shafts, fuel pumps, injectors, and catalytic con-

verters. For the prefecture’s310,000 autoworkers,

retooling would mean painful downsizing, with

far-reaching efects for Japan’s industrial heart-

land. “It takes out whole geographical areas,” says

Rob Carnell, chief Asia-Paciic economist at ING

Bank NV in Singapore. “The hairdressers and the

local mom and pop shops, and all of the businesses

where the autoworkers would have spent money—

they all get hit, too.”

It’s a slow-moving threat. EVs last year accounted

for just 1 percent of global car sales, and most ana-

lysts say phasing out gas guzzlers will take many,

many years. And with Toyota’s success with the

Prius hybrid allowing the carmaker to be slower

than others to go electric, Aichi prefecture has been

able to carry on longer with business as usual.

In December, though, Toyota announced plans

to add more than 10 all-battery models to its lineup

starting in the early 2020s. The automaker is also

developing a solid-state battery to underpin an

even broader EV rollout. Top-tier suppliers Denso

Corp. and Aishin Seiki Co., which are part-owned by

Toyota and generate billions in revenue, are invest-

ing to keep up. “As with all technological change,

there’s winners and losers,” says Janet Lewis, an

industry analyst in Tokyo at Macquarie Group Ltd.

“You’ll have some suppliers that are able to develop

some of the key components, but if you’re making

mulers you may not be one of the winners.”

A tour of the factory that Kimura runs in Hekinan,

a city that’s a 1 ½-hour drive from Toyota’s head-

quarters, shows why change can be hard. Although

it’s a relatively big company, with 500 employees,

a visit there is like taking a trip back in time. Asahi

has been milling the same engine and transmission

parts for decades, and some workers still operate

machinery purchased in 1971. “If you just covered

over the computers, you’d think this was the Showa

era,” says Kimura, referring to the days of Emperor

Hirohito, whose reign ended in 1989.

A 51-year-old former Toyota manager, Kimura

started shaking things up at Asahi soon after joining