Japan signed a critical minerals deal with the U.S. — but it’s still losing the global EV race

Japan is preparing to become a bigger player in electric vehicles by signing a major minerals trade deal with the United States, but it still has work to do and resource constraints could slow its progress.

Tokyo signed the U.S.-Japan Critical Minerals Agreement in March, ensuring the two countries are committed to strengthening supply chains and promoting electric vehicle battery technology.

Notably, the deal allows minerals from Japan to meet purchase requirements for the U.S. EV tax credit, up to $7,500 per vehicle. The U.S. signed the Inflation Cut Act in 2022, subsidizing domestic production of electric vehicles and batteries.

David Boling, director of trade for Japan and Asia at Eurasia Group, told CNBC that the major minerals deal was “negotiated in an extremely fast time,” whereas similar deals “typically take years.” .

Japan is eager to meet the demands, but “the Japanese auto companies still have a lot of work to do in electric vehicles if they want to become major players,” said Bolling, who previously served as a trade negotiator in the Office of the U.S. Trade Representative for Japan-related issues. trade.

Japan has been lagging behind in electric vehicles. While Western and Chinese automakers control about 90% of the global EV market in 2022, their Japanese counterparts have less than 5%, Nikkei Asia The report said.

But Chinese automakers such as Toyota have been taking steps to close the gap.New CEO Koji Sato announced at its shareholders meeting first press conference Toyota plans to launch 10 new pure electric vehicles by 2026, with annual sales reaching 1.5 million.

It was a marked shift from last September, when his predecessor Akio Toyoda said the automaker would continue to invest in a variety of electric vehicles, rather than going all-in on all-electric or battery-electric vehicles. His comments essentially reinforced Toyota’s EV strategy at the time, which some investors and environmental groups criticized as too conservative.

Sato succeeded Akio Toyoda as CEO in April with the aim of “accelerating (Toyota’s) shift to electrification,” according to one company. official records. Akio Toyoda is currently the chairman of the company.

so honda announced in april The plan is to produce more than 2 million electric vehicles per year by 2030, with the ultimate goal of selling only pure electric or hydrogen-powered electric vehicles globally by 2040.

So far, Japanese automakers have focused more on hybrid and hydrogen vehicles, says Eurasia’s Bolling. Similar to Toyota, automakers such as Honda and Nissan have only recently announced significant expansions to their all-electric vehicle lineups. Hybrid cars still account for 96.8% New Electric Vehicle Sales In the country, according to the Japan Automobile Dealers Association.

But pure electric vehicles are the main driver of growth in the number of electric vehicles on the world’s roads, and are expected to account for more than 70% of the total annual growth through 2022. International Energy Agency reports. In 2022, the sales of pure electric vehicles in the United States will be slightly more than 730,000, accounting for 43.5% of the total sales of electric vehicles that year. data Argonne National Laboratory shows.

Sales of pure electric vehicles in China are also growing rapidly, up 60% from 2021 to 4.4 million, the IEA added. The world’s largest electric car market has implemented a wide range of electric vehicle promotion policies in its major cities, such as subsidies for every purchase of a pure electric vehicle, the IEA said.

“Japanese companies got off to a slow start and may not be able to compete now in the crazy sprint of electric vehicles,” Bolling said.

Japan relies on China for key minerals necessary to produce components for electric vehicles. At present, more than 90% of electric vehicles on the market are equipped with permanent magnet synchronous motors. use of rare earth elements According to the International Energy Agency, these sources of energy are geographically concentrated in China.

China refines 90 percent of these elements and 60 to 70 percent of lithium and cobalt, materials needed to make electric vehicle batteries. IEA report established. Japan is the largest consumer of rare earth elements such as dysprosium outside of China.

“I don’t think China is going to be a key global player in supply chains in the short or medium term,” said Kristin Vekasi, an associate professor of political science at the University of Maine.

The Japanese government and top manufacturers are seeking new technologies to reduce their reliance on Chinese raw materials as part of efforts to diversify their electric vehicle supply network away from China.

Proterial, formerly known as Hitachi Metals, is working on developing electric vehicle motors that use fewer rare earth metals, Nikkei Asian Report. The Japanese government is also allocating 6 billion yen ($42.9 million) in 2022 to projects exploring the extraction of rare earths from deep-sea mud, Nikkei Asian Report.

But finding alternatives to current rare earth sources will take a lot of time and money, Bolling said. “At the same time, Japan must face up to its dependence on China and make every effort to reduce this risk,” he said.

Former trade negotiator Bolling said the latter “stand out” and “show that Japan aims to develop stronger economic relations with Indonesia in many areas including key minerals”. According to reports, Indonesia has one of the largest nickel reserves in the world and is expected to account for 46% of global primary nickel production by 2027 S&P Global Commodity Insights. Nickel is a key component of the lithium-ion batteries used in most electric vehicles.

The government will also continue to provide direct funding for Japanese-led projects, as national agencies such as the Ministry of Economy, Trade and Industry or the Japan Metal and Energy Security Organization have historically done. Japan’s Ministry of Economy, Trade and Industry will subsidize up to half of Japanese companies’ smelting and mine development project costs, Nikkei Asia Reported in April.

In an industry with a “lower success rate,” Vikasi said, “state intervention is warranted, at least in the short term.”

Vikasi added that government aid and investment could mitigate risks such as the “long term” of mining projects, volatile mineral prices and lack of expertise among junior mining companies.

Bolling said Japan’s electric car hopes were a “catalyst” for a major minerals trade deal with the United States. It remains to be seen whether recent moves by automakers and state agencies will realize those ambitions.