From Europe to Southeast Asia, Chinese electric vehicle (EV) maker BYD is on a roll. But its toughest challenge is much closer to home: cracking Japan, the world’s fourth-largest auto market, where it has yet to make a dent in sales after years of trying. That might be about to change.
This week’s introduction of the tiny Racco, which means ‘sea otter’ in Japanese, is the right approach in a country whose love for small cost-efficient vehicles goes back decades.
The Shenzhen-based firm is the first foreign player to make a dedicated effort to tackle the boxy kei jidosha, or light car, a quintessentially Japanese vehicle category. Much smaller than even compact models, these autos are restricted to 3.4m in length and 1.48m wide. They even have their own tax and insurance rules.
The price of ¥2,145,000 ($13,000) for an entry-level model shows BYD is serious about gaining traction with a bespoke battery-powered design. By comparison, Nissan’s popular Sakura mini has a higher sticker price, but is slightly cheaper once national subsidies are factored in. That said, Sakura has fewer features and a shorter range when fully charged, so the BYD is offering value at a comparable price.
The strategy is no accident. The four-seater kei was created in 1949 to provide low-cost, fuel-efficient transport during the difficult post-World War II era. After decades of refinement around a homegrown set of regulations and customer expectations, the mini segment has become a beloved institution, accounting for more than a third of annual vehicle sales in Japan.
Foreign brands make up about 5% of shipments, so even modest success would indicate a breakthrough and create a path for other Chinese companies to follow.
This is important because BYD has vowed to overtake Toyota as the world’s top carmaker in five years—even without access to the US, which bars Chinese vehicles with 100% tariffs plus a national security ban on software and hardware systems. With revenue shrinking at home, it must rely on new export markets for growth.
The carmaker has its work cut out. It sold only 4,500 vehicles in Japan last year. Prospects dimmed in April, when the national government changed the way it calculates subsidies for clean-energy vehicles. EV demand remains extremely low for a developed country, where hybrids are much more popular.
The previous formula rewarded driving range and energy efficiency, which benefited BYD because of its high-tech specifications. The revised version places greater weight on supply chains and cyber-security, bolstering companies that help homegrown industry, according to Ken Maeda.
Given the tense relations between Tokyo and Beijing, perhaps it is no surprise that the subsidy for BYD’s entire lineup was cut by more than half to ¥150,000. The overhaul widened the gulf with Toyota, whose bZ4X model retained the maximum ¥1.3 million subsidy, and Tesla, whose purchase incentive followed closely at ¥1.27 million. In the smallest kei category, the subsidy gap is substantial at around ¥400,000 compared to rival models.
This is, no doubt, a major non-tariff barrier to overcome. But it was to be expected. Japan, like Mexico and Thailand, is extremely nervous about the threat posed by Chinese carmakers.
That is why it was shrewd of BYD to enter the budget segment. Its reputation for offering well-equipped cars at competitive prices aligns with what many kei drivers are looking for. They are extremely popular as family vehicles, especially outside major cities. The Racco’s pricing demonstrates the carmaker’s ability to work around its subsidy disadvantage.
To be sure, it is too soon to know how enthusiastically consumers will embrace the new entrant. Japanese buyers are among the most loyal in the world, tending to stick with familiar names like Suzuki, Daihatsu and Honda that dominate the mini market. They have spent decades earning trust for reliability, resale value and dealer support.
Kei customers are particularly conservative. Many have owned several generations of the same model, making it difficult for an unfamiliar foreign brand—no matter how competitive its technology or price—to persuade them to switch.
Opening dealerships in smaller cities, where demand for tiny cars is strongest, is a good start. BYD has 77 sales locations, including dozens of official dealerships. It should press ahead with a goal of reaching 100 outlets by the end of the year and then expand further.
Winning over Japanese kei buyers will not happen overnight. But if BYD can convince some of the world’s most demanding and loyal drivers to embrace a Chinese brand, it would be the company’s most impressive victory yet. ©Bloomberg
The author is a columnist for Bloomberg Opinion’s Asia team, covering corporate strategy and management in the region.