As the European Union (EU) pushes forward with legislation favoring locally produced vehicles to counter Chinese electric cars, Japan's automotive industry is facing significant challenges. Japanese manufacturers produce most of the electric vehicles sold in Europe outside the EU, and if the proposed law passes as is, they may lose access to subsidies and tax benefits. In response, the Japanese government and industry representatives are making last-minute efforts to influence the legislation ahead of the amendment deadline.
According to the Nihon Keizai Shimbun (Nikkei) on September 28, the EU's proposed Industrial Acceleration Act (IAA) mandates that 70% of the value of electric vehicle parts must be sourced from within the EU, and the vehicles themselves must be assembled in the EU. Electric vehicles that do not meet these criteria will be excluded from government purchase subsidies and tax incentives. The bill is still under review, with a deadline for amendments set for September 30.
The EU's push for local production is driven by the increasing market share of Chinese electric vehicles in Europe. According to French market research firm Inovev, Chinese brands accounted for 11.5% of electric vehicle sales in Europe last year, with sales volumes increasing by 1.9 times compared to the previous year.
A significant concern for Japanese automakers is that many of their vehicles are also produced outside the EU. While Toyota has a production base in Europe, its electric models, such as the bZ4X, are primarily imported from Japan. Plans to produce electric vehicles at its Czech facility are not set to begin until 2028. Suzuki imports most of its electric vehicles from India, and Nissan's flagship electric model, the Leaf, is produced in the UK, which is not an EU member.
The most substantial impact is expected in the European company car market, which accounts for 60% of the region's automotive sales. According to Nikkei, company cars are provided by businesses to employees for work or welfare purposes and can benefit from tax incentives. If the bill passes in its current form, electric vehicles produced outside the EU will be excluded from these benefits, making them less attractive options for companies. Individuals purchasing electric vehicles produced outside the EU will also be ineligible for government subsidies. Although Japanese products are expected to be exempt under the EU's Economic Partnership Agreement (EPA), electric vehicles are currently not included in the exemption list, prompting the Japanese automotive industry to call for amendments.
Relying solely on hybrid vehicles to respond to these changes is also challenging. The EU Commission has proposed separate regulations to reduce carbon dioxide emissions from new cars by 90% by 2035 compared to 2021 levels. Nikkei predicts that to avoid substantial fines, most new cars sold in Europe will need to be electric. GlobalData, a UK market research firm, forecasts that the share of electric vehicles in European new car sales will rise from 18% last year to 85% by 2035.
Currently, Japanese cars account for just over 10% of the European new car market, but their share in the electric vehicle segment is only about 2%. To maintain their presence in the European market, Japanese manufacturers must increase local production of electric vehicles, but transitioning production facilities in a short time frame is not feasible. A senior official from a Japanese automaker told Nikkei that if the bill passes as it stands, the future of their European operations could be jeopardized.
The Japanese government and industry are urging the European Parliament to amend the legislation. According to Nikkei, representatives from the Japan Automobile Manufacturers Association, the Japanese government, and local subsidiaries of Toyota, Nissan, Honda, and Mazda met with key members of the European People's Party (EPP), the largest political group in the European Parliament, in Strasbourg, France, on September 16. Kazumi Nishikawa, a senior official from the Ministry of Economy, Trade and Industry, emphasized that if Japan is recognized as a 'reliable partner' in the legislation, it would strengthen economic security cooperation between Japan and the EU.
The extent to which the final amendments reflect the requests of the Japanese automotive industry remains uncertain.
The European Parliament and the EU Council are expected to review the bill based on the amendments by December of this year. Following that, a trilateral negotiation involving the EU Commission is planned to take place by March of next year. If adopted, the legislation could come into effect as early as 2028.
* This article has been translated by AI.
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