Business / Corporate

Japan’s automakers chase IT tie-ups in race for driving’s future

by Shusuke Murai

Staff Writer

The race to transform the global auto industry has reached full throttle.

Facing what has been touted as a once-in-a-century transformation, domestic carmakers are rushing to transition from conventional manufacturers into tech-driven “mobility companies” focused on CASE (connected, autonomous, shared and electric) technologies.

Toyota Motor Corp. on Tuesday unveiled two revamped models — the Crown and the Corolla Sport — the first offerings in its lineup of so-called “connected cars” that will be able to utilize online services offered through a special communications network.

The networked models, for example, allow their owners to become “friends” with them on Line. The owner can then use the messaging app to set a destination on the car’s navigation system, while the car can use it to remind the driver to start on time and make sure there is enough fuel for the trip.

Toyota hopes its so-called mobility service platform will allow other companies, including insurers and car-sharing services, to make use of big data to offer other services to drivers of connected cars.

“I decided to transform Toyota from a car manufacturer into a mobility company that provides various transportation services,” Toyota Motor President Akio Toyoda said at the unveiling event.

“With Crown and Corolla Sport, I want to create a platform where people with a venture spirit come and work together to make these cars evolve with innovative ideas and technologies,” he said.

Toyota plans to install the networking system in all cars sold in the country from here on out.

The global auto industry has entered a new phase of competition with the world’s information technology giants, which have better investment funding know-how and speedier research and development environments.

Waymo, a unit of Google’s parent Alphabet Inc., has emerged as a global leader in the race to develop autonomous driving technology, with more than 7 million miles of road tests under its belt. The Silicon Valley-based company, which aims to offer a ride-hailing service in partnership with Fiat Chrysler Automobiles, is competing with General Motors, whose autonomous car unit recently gained a $2.25 billion investment from the SoftBank Vision Fund.

Last month, Toyoda, who is also chairman of the Japan Automobile Manufacturers Association, expressed concern the nation’s car industry — and its manufacturing prowess — is seeing its dominance fade with the advent of the internet of things, artificial intelligence and other advanced technologies.

“The questions are whether the automobile industry can maintain its presence even though the environment surrounding mobility is rapidly changing, and whether cars and motorcycles can still be the major (form of) mobility in the next century,” he said. “We are at the beginning of a life-or-death battle in an unknown world involving new rivals and new competition rules.”

The sense of urgency has driven automakers to seek alliances with partners that may have been unimaginable in the past, marking a dramatic transformation in the industry.

Last year, Toyota formed an alliance with rival Mazda Motor Corp. to develop core technologies for electric cars and connectivity, a move spurred by the global shift toward developing zero-emission vehicles and stricter environmental regulations.

Toyota also announced this month that it would invest $1 billion in Singapore-based tech firm Grab Holdings Inc., a move intended to strengthen its position in the ride-hailing sector in Southeast Asia.

Honda in the meantime said it will form a tie-up with GM to jointly develop batteries for EVs sold in North America. It is also reportedly in talks with Waymo on potential cooperation in autonomous-driving technology.

As for Nissan, it plans to strengthen its alliance with Renault SA and Mitsubishi Motors Corp. and accelerate collaboration on technologies for “next generation” vehicles under Alliance 2022, its strategic midterm plan. The three also announced plans to join a ride-hailing platform led by Chinese transportation giant Didi Chuxing, which has formed a partnership with Toyota.

The deals will allow automakers to reduce development costs as they compete with the deep-pocketed IT giants, said Kentaro Abe, a manager at Deloitte Tohmatsu Consulting who is well-versed in the CASE trend.

“Looking at operating profit margin alone, tech giants are far more profitable than most carmakers, meaning they have greater capacity to invest,” he said.

The wave of shake-ups has spread beyond the car industry.

To bolster development of the AI technologies that underpin its autonomous driving program, Toyota announced in May a plan to invest ¥400 million in Albert Inc., a Tokyo-based data solutions company with about 100 engineers.

For Toyota, the alliance with Albert, whose strength lies in big data analysis, is intended to help it overcome a weakness — the lack of in-house computer engineers who can further develop its self-driving technology, according to Toyota Motor’s Hiroyuki Hirano.

“We feel a sense of urgency” over the lack of technical resources for such a big project, Hirano said at a news conference. “We may not be able to develop technology for autonomous driving” without Albert.

Acquiring engineers has become even more difficult as demand has been increasing even from non-IT companies interested in integrating their operations with AI and the internet of things trends.

An industry ministry survey in December showed that 77.4 percent of 2,638 Japanese manufacturers felt they didn’t have enough employees to digitize their businesses properly, according to a white paper on the manufacturing sector. The ministry estimates that by 2030, Japan may face a shortage of 790,000 IT workers due to increasing demand for engineers.

Therefore, automakers are competing fiercely with IT firms to hire top-notch engineers. IT companies tend to attract talent with extravagant salaries that can start from between ¥15 million and ¥20 million per year, Abe of Deloitte Tohmatsu Consulting said.

It also remains to be seen whether carmakers can maintain the same level of profitability after shifting their revenue sources to the services sector rather than auto sales, Abe said.

“Unit sales will eventually decline if sharing services become common. Of course, revenues from services outside manufacturing will expand, but how much they can earn … is still unclear,” he said.

Yet, carmakers “have no choice but to move forward,” Abe said. “Because if they don’t move forward, someone from outside will come in and take over.”