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Despite a Critical Minerals Deal with the U.S., Japan Trails in the Global EV Race

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Japan Signs US Critical Minerals Deal to Strengthen EV Supply Chains

Japan's Mission to Catch up with EV Production

Japan may have signed a Critical Minerals Agreement with the U.S. to strengthen supply chains, however, it still lags behind in electric vehicle production. While Western and Chinese automakers controlled about 90% of the global EV market in 2022, Japanese automakers accounted for less than 5%, says a Nikkei Asia report. Enhancing upgrade capabilities and dealing with the limitations of resources can slow Japan’s progress. Japan urgently needs to move towards reducing fossil fuels and thus meet the requirements mentioned in the agreement.

Japan's Shift towards BEVs

Toyota and Honda are among several companies attempting to close the gap in Japan's EV production. Toyota has announced plans to introduce ten new battery-electric vehicle models amounting to 1.5 million in annual sales by 2026. Furthermore, Honda aims to produce more than 2 million EVs annually by 2030, intending to sell BEVs or hydrogen-powered EVs worldwide by 2040. Up until now, many Japanese automakers have concentrated more on hybrids and hydrogen, while focusing less on all-electric vehicles. Hybrid EVs account for around 96.8% of new EV sales in Japan, according to the Japan Automobile Dealers Association.

Japan's Dependence on China

Despite Japan's efforts to catch up in the electric vehicle space, it still depends heavily on China for critical materials essential to the production of EV components. Over 90% of all EVs on the market today contain permanent-magnet synchronous motors, which use rare earth elements that are geographically concentrated in China, according to the International Energy Agency. China refines 90% of these elements and 60-70% of lithium and cobalt needed to produce EV batteries. Japan is the largest consumer of rare earth elements like dysprosium outside of China.

Japan's Options for Diversifying EV Supply Chains

In order to diversify its EV supply chains and reduce its reliance on China-sourced materials, Japan’s government and top manufacturers are pursuing new technologies. Proterial, formerly known as Hitachi Metals, is experimenting with fewer rare earth metals within its EV motor production. Additionally, the Japanese government has allocated $42.9 million towards a project exploring extracting rare earths from deep-sea mud. However, finding alternative sources for rare earths current dependencies will require a significant amount of time and money to work, and until then, Japan must accept its reliance on China for these materials.

Japan's Focus on Economic Cooperation

The Japanese Government emphasizes economic cooperation with Indonesian and Southeast Asia countries as a counterweight to its dependence on China's EV supply chains. Indonesia hosts one of the world’s largest nickel reserves, which is expected to contribute 46% of the global primary nickel production by 2027. Nickel is an essential component used in the lithium-ion battery cells that power BEVs. The Japanese Government is providing direct funding for projects like these to keep its EV objectives and ambitions within reach. State intervention will remain necessary for Japan to achieve its desired goals, especially considering the low success rates in this sector.
In conclusion, Japan's mission to catch up with the production of electric vehicles is hindered by its dependence on China for critical materials. While its government and manufacturers actively pursue alternative sources for these materials and diversify EV supply chains, finding viable solutions require significant time and money. Nevertheless, Japan is committed to reducing its reliance on China and meeting its goals to reduce fossil fuels as outlined in the Critical Minerals Agreement signed with the U.S.

For a new business operating in the EV industry, it's important to recognize the significance of a diversified supply chain that does not entirely rely on one country or source for critical materials. Exploring new technologies and funding projects that aim to extract these materials from alternative sources can benefit businesses in the long run and provide them with a competitive advantage. Additionally, focusing on economic cooperation with countries that have significant reserves of these materials can lead to a stable and reliable supply chain. In a rapidly growing EV market, businesses must remain flexible and adaptable to changing circumstances while aiming to reduce their carbon footprint.

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