Newest SPEEDA INSIGHTS by SPEEDA Analysis Team

1. 01
Understanding Japan’s Automobile-Related Industries Through the Value Chain
By Nozomi Nakagawa - SPEEDA Analysis Team
Translated by Kenneth Bresson
The following is a special edition for automobile-related industries. It is based on the value chain
provided in SPEEDA, as well as the fluctuations of fundamental figures disclosed in the securities
reports of companies across a ten-year period.
Automobiles Are Japan’s Key Industry
Automobiles are regarded as Japan’s key industry. According to materials released by the Japan
Automobile Manufacturers Association (JAMA), the number of workers in automobile fields in Japan
amounted to 5.29 million people as of FY2015, which was 8.3% of Japan’s entire workforce.
2016 Unit Sales for Japanese Automobile Manufacturers
Below are the 2016 unit sales figures for all major automobile groups. Toyota Motor and Volkswagen
continue to compete for the top spot, and in terms of the number of automobiles, these two
companies together with GM are referred to as the “10 Million Club”.
In recent years, however, it is becoming difficult to measure business size on automobile unit sales
alone. Major trends within the automobile industry will be reviewed later in this report.
Understanding Japan’s Automobile-Related Industries Through the Value Chain
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Understanding Japan’s Automobile-Related Industries Through the Value Chain
Companies in the Value Chain
Below is the value chain for the automobile industry. Numerous companies are involved in the
manufacturing process before a car is delivered to a consumer.

3. 03
Understanding Japan’s Automobile-Related Industries Through the Value Chain
In addition, there is a broad range of companies that provide the various components, systems, and
technologies used to produce an automobile.
Industry Trends: Increasing Use of Electricity as a Motive Power Source
Automobiles can be categorised by motive power source, as can be seen in the below image. Petrol-
fuelled vehicles are the mainstream, and according to the International Energy Agency (IEA), even the
percentage of petrol-fuelled vehicles owned worldwide in 2020 is expected to be over 70% of the total
number of vehicles owned. There are still numerous issues that surround the proliferation of such
vehicles as plug-in hybrid vehicles (PHVs), electric vehicles (EVs), and fuel cell vehicles (FCVs), as well
as the enhancement of charge station infrastructures.

4. 04
Understanding Japan’s Automobile-Related Industries Through the Value Chain
The improvement of fuel efficiency, which is an issue for the transportation sector, will continue to
require attention going forward. In addition to changing motive power sources, the production of
lighter parts and components also has a substantial contribution to the improvement of a vehicle’s fuel
efficiency, and is an important research topic for the suppliers of all automobile part and component
types.

5. 05
Understanding Japan’s Automobile-Related Industries Through the Value Chain
Activity in New Areas Like Advanced Driver-Assistance Systems
Advanced driver-assistance systems (ADAS) are an area of technology that is attracting attention in
recent years.
Traditionally, safety components like seat belts and air bags had been responsible for the safety of the
driver and passengers. However, expectations are rising for automobiles equipped with ADAS, and
their ability to avoid vehicular crashes and accidents. ADAS technology enhances the sensors (such as
radars and cameras) and semiconductors equipped in automobiles, and activates brakes automatically
whenever an obstacle is detected. Furthermore, it can be used to adjust the distance between a
driver’s car and the car in front of the vehicle on expressways and motorways. These features have led
to increasing expectations for automobiles equipped with ADAS, and their ability to avoid obstacles on
the road.
In addition to existing automobile component manufacturers, semiconductor manufacturers like
Renesas Electronics and Intel are entering the industry one after another.

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Understanding Japan’s Automobile-Related Industries Through the Value Chain
“Connected Cars” and the Entry of Players from Other Industries
The external environment surrounding automobiles is also changing. For example, the structure of
“connected cars”, or cars equipped with internet access, comprises diverse fields like communications
systems, security, and payment services, leading to expectations for the further expansion of the
automobile manufacturing industry.
Restructuring Amongst Automobile and Component Manufacturers
Amidst the aforementioned changes in this industry’s environment, several reorganisations are taking
place between automobile manufacturers and component suppliers.
In August 2016, Toyota Motor turned Daihatsu Motor into a wholly-owned subsidiary, and both
companies established an internal company referred to as the “Emerging-market Compact Car
Company” on 1 January 2017. In addition, Toyota formed an alliance with the major car dispatch
operator Uber in May 2016 in the ride-sharing field, thus expanding its areas of service.

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Understanding Japan’s Automobile-Related Industries Through the Value Chain
In October 2016, Nissan Motor acquired 34% of Mitsubishi Motors’ stocks, making Nissan the
company’s largest shareholder. When figures for both the Nissan-Renault alliance and Mitsubishi are
added to Nissan’s total unit sales, the company ranks third after Toyota and Volkswagen.
Honda Motor began joint research with Softbank in artificial intelligence (AI) in July 2016. In December
2016, the company announced an alliance with Waymo, which is under the umbrella of Alphabet, in
research for completely automated driving technology.
Also in December 2016, Denso and NEC announced a comprehensive alliance for the joint
development of automobile products that utilise ADAS and AI. In this way, alliances are active in the
automobile sector, regardless of industry.
Ten Years Ago and Now: A Comparison of Figures for Leading Companies
The following compares trends for leading industry players over FY2005–15.
See below for information on revenues, operating profits, and operating profit margins. The amount
of operating profit is shown on the vertical axis, with operating profit margin shown on the horizontal
axis. The size of the bubbles represents the amount of revenue.

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Understanding Japan’s Automobile-Related Industries Through the Value Chain
Toyota is the domestic leader in revenue and unit sales, and its operating profit also grew
approximately 150% over the ten-year period.
Fuji Heavy Industries (trade name changed to Subaru in April 2017) and Bridgestone are two companies
whose operating profit margins had increased significantly.
Fuji Heavy Industries in particular is focused on the North American market, and through enhancing its
brand power, the company was able to lower its sales incentives, which are included in SG&A. Looking
at the comparison of the unit sales for all companies in FY2015 and operating profits by automobile
segment, Toyota stands at approximately JPY 240,000 per vehicle, Nissan at about JPY 100,000 per
vehicle, and Honda at about JPY 30,000 per vehicle, while Fuji Heavy Industries registered
approximately JPY 570,000 per vehicle, over two times that of Toyota.
Bridgestone acquired the US company Firestone in 1998, and Bandag, another US company, in 2007.
Through these acquisitions, the company aimed for the expansion of its service department and the
strengthening of its vertical integration model, and was able to establish a stable profit base that is
uninfluenced by raw material prices. Recently, the company’s profit has continued to rise owing to
favourable performance in markets in North America.
NGK Spark Plug holds the top share in the global market for spark plugs, and continues to maintain a
high operating profit margin due to the added value of its products. Furthermore, the company is
attempting to enter the medical field through the development of artificial bones using ceramic
technology.

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Understanding Japan’s Automobile-Related Industries Through the Value Chain
Market Capitalisation and EPS Fluctuation
Below is a list of companies based on the amount of growth in their market capitalisations (excluding
treasury stocks), ordered from highest to lowest. The progress of Fuji Heavy Industries stands out.
Although Toyota’s market capitalisation has decreased, it boasts the top spot in market capitalisation
value domestically, and its EPS is steadily rising.

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Understanding Japan’s Automobile-Related Industries Through the Value Chain
Meanwhile, a look at EPS growth reveals companies like Toyota Industries Corporation and TPR.

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Understanding Japan’s Automobile-Related Industries Through the Value Chain
R&D Expenses
A look at the ratios of R&D expenses to revenue for FY2015 shows that Denso has the highest at 8.8%.
Denso has acquired high credibility throughout the world for the quality of its products. The company
also has a broad range of operations in areas outside of automobiles, such as home appliances, utilising
its exceptional technological capabilities in heating and cooling. Moreover, Denso established the
ADAS Business & Technology Development Division in December 2015.

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Understanding Japan’s Automobile-Related Industries Through the Value Chain
Employees in the Automobile Industry
In terms of employee number for the entire group, Toyota is on top with over 300,000 employees. A
look at the differences between single entities shows that Honda, Nissan, Bridgestone, Aisin Seiki,
Asahi Glass, and Takata each have a relatively high number of group companies. Also, Nissan
substantially reduced its number of employees in the early 2000s, as did Asahi Glass in FY2014.
The amount of revenue per employee is provided below for reference. However, it should be noted
that there are strict differences between the product and business types of each company.
Amongst automobile manufacturers and assemblers, Suzuki, which focuses on light vehicles, stands
out in the top companies for revenue per employee. Daihatsu, which also focuses on light vehicles, has
about JPY 39.1 million in revenue per employee. The top-ranked Nissan Shatai experienced a decline
in overall revenue compared to FY2005, so the increase in revenue per employee is likely due to a
reduction in the company’s number of employees.

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Understanding Japan’s Automobile-Related Industries Through the Value Chain
When looking at the average employee salary for each company, glass manufacturers stand out
alongside automobile assemblers. According to the Basic Survey on Wage Structure released by the
Ministry of Health, Labour and Welfare, the average annual salary for employees in transportation
machinery manufacturing industries aged between 35 and 44 is around JPY 6 million. However, it
should be noted that this figure applies to individual companies, as opposed to consolidated group
figures.

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Understanding Japan’s Automobile-Related Industries Through the Value Chain
In Closing: Significant Changes in Industry Possible
The automobile industry is characterised by both its large scale and the numerous related industries.
In addition to the manufacturing and sale of vehicles, automobile manufacturers also have a particular
strength in the financial services business. Furthermore, there are several component and material
suppliers that utilise their strong technological capabilities in industries outside of automobiles, and
there are companies among them with a high potential for growth moving forward.
In future, the automobile industry is likely to experience substantial changes. The official launch of
automated driving businesses is expected to change the act of driving itself tremendously. Companies
are also likely to diversify their businesses, as well as undergo restructuring.

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Understanding Japan’s Automobile-Related Industries Through the Value Chain
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