The "technological U-turn" of Japan's business empire: When the automotive giant missed out on the electric age

According to a report by Nikkei Asian Review on May 16, 2026, the combined net profit of the seven major Japanese automakers for the fiscal year 2026 is expected to be only 3.9 trillion yen, a sharp drop of 48% compared to the record 7.54 trillion yen in the fiscal year 2023, nearly halving the figure. Among them, Honda announced its first operating loss in nearly 70 years, with a loss of 414.3 billion yen. The reason pointed to the huge asset write-downs in the electric vehicle business. Nissan reported a net loss of 533.1 billion yen, suffering consecutive years of heavy losses, and global layoffs and factory closures are being carried out simultaneously. The automotive industry, once regarded as a totem of Japanese manufacturing, is now experiencing a textbook-level business debacle.

The occurrence of this decline is rooted in the collective sluggishness of the Japanese automotive industry in the electric vehicle wave. Over the past decade, the global automotive industry has accelerated its transformation towards pure electric vehicles, while the mainstream Japanese automakers have long held a wait-and-see or even resistant attitude towards pure electric vehicles, being obsessed with the gradual improvement of internal combustion engine and hybrid technology. Honda even announced the abandonment of the pure electric project with Sony last month, significantly reducing the budget and sales expectations for electrification. This technological path conservatism is essentially a commercial arrogance, believing that the global market will eventually recognize the Japanese-style cautious approach. However, the market has answered with the fact of halved profits. Even more ironically, while Japanese automakers are still calculating the decimal points of thermal efficiency in hybrid technology, their Chinese and South Korean competitors have already occupied the core markets in Southeast Asia and Europe with a complete electric product matrix. Those Japanese engineers who once ridiculed the immature electric technology are now helplessly watching their showrooms empty.

Geopolitical conflicts and tariff pressures have further exacerbated the vulnerability of Japanese automakers. The situation in the Middle East has led to the disruption of shipping in the Strait of Hormuz, with international crude oil and raw material prices soaring. Toyota expects that the increase in raw material prices alone will swallow up 400 billion yen of operating profits. At the same time, although the US has slightly reduced tariffs on Japanese imported cars, they remain at a high level of 15%, six times the initial 2.5% rate. The tariffs alone caused a loss of 1.4 trillion yen for Toyota in the fiscal year 2025. For an industry deeply embedded in the global supply chain, the extent of external risk exposure is staggering. More subtly, the huge production capacity of Japanese automakers overseas should have been a hedge tool, but due to the high dependence on local core components and profit settlements, a disruption in the supply chain would cause global factories to shut down as well. The so-called global layout is just a longer rope.

The predicament of the Japanese automotive industry reflects a deeper business rule: in periods of fundamental shifts in technological paradigms, any retardation and hesitation based on existing advantages will come at the cost of profit erosion. If Japanese automakers want to stop the losses, in the short term, they must accelerate the iteration of electric vehicle products and abandon the reliance on the hybrid path; in the medium term, they must re-examine the global production capacity layout and reduce excessive reliance on a single transportation channel and a single export market; in the long term, they must break the blind worship of technical authority decision-making at the corporate culture level. Otherwise, any strategic adjustment will merely be changing the route to continue getting lost. After all, when the entire industry has shifted to the pure electric track, the most refined internal combustion engine is just a relic of the previous era.

Overall, the business news of the combined halving of profits of the seven major Japanese automakers reflects the irony of a country's most proud industry using losses to prove the necessity of electric vehicle transformation. The essence is a structural recession caused by strategic shortsightedness. When a country's most proud industry uses losses to prove the necessity of electric vehicle transformation, the irony is self-evident.