Japan Electric Car Market: Government Policies and Incentive to boost market growth

Japan Electric Car Market was valued at USD 37.07 Bn. in 2023 and is expected to reach USD 110.46 Bn. by 2030, at a CAGR of 16.88% during the forecast period.
Japan Electric Car Market Overview
Electric Car is powered by an electric motor rather than a traditional internal combustion engine (ICE) that relies on gasoline or diesel. Electric cars use electricity stored in rechargeable batteries, which power the electric motor to drive the vehicle. These cars run entirely on electricity stored in batteries. They need to be plugged into an electric power source to recharge. Electric cars have gained popularity due to their potential to reduce greenhouse gas emissions and reliance on fossil fuels, especially when powered by renewable energy sources such as solar or wind. Japan is the third-biggest car maker globally after China and the US and is expected to lead the global Electric Car market, which is expected to boost the Japan Electric Car Market growth.

Japan has been supportive of electric vehicles as part of its efforts to reduce greenhouse gas emissions and dependence on fossil fuels. The government offers incentives such as subsidies and tax breaks to both consumers and manufacturers to promote the adoption of electric vehicles. 88,535 electric vehicles were sold in Japan last year, accounting for 2.2% of all new passenger car sales. According to the Japan Automobile Dealers Association (JADA), 3,675,650 new cars were sold in 2021, and 40.5 percent were electric vehicles. Japan pledged to become net-zero by 2050 and slash emissions by 46% by 2030.

The government recognises the shift to Electric car as being a way of supporting the country’s decarbonisation efforts. First, it plans to ban the sale of gas-fueled cars in the mid-2030s. It also plans to make Electric Car more affordable for consumers, which is expected to boost the Japan Electric Car Market growth. Meanwhile, subsidies are now reaching a maximum of 800,000 yen (USD 7,000).

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Japan Electric Car Market Dynamics
Government Policies and Incentive to boost the Japan Electric Car Market growth

Government initiatives such as subsidies, tax incentives, and regulations promoting electric vehicles play a significant role in shaping the market. Incentives encourage both consumers and manufacturers to invest in electric vehicles, leading to increased adoption. Growing awareness of environmental issues, such as air pollution and climate change, drives demand for electric vehicles as a cleaner alternative to traditional internal combustion engine vehicles. Stricter emissions regulations further incentivize the adoption of electric cars.Among domestic manufacturers, Nissan topped EV sales with 54,800 units, 68 percent of which were the light-duty Sakura. Mitsubishi Motors followed with 7,021 eK X EVs. Mitsubishi Motors followed with 7,021 eK X electric vehicles, while Toyota ranked third with 2,929 vehicles.

Advances in battery technology, such as improvements in energy density, charging speed, and cost reduction, make electric vehicles more attractive and practical for consumers. Innovations in electric drivetrains and vehicle design also contribute to the growth of the Japan Electric Car market. The expansion of charging infrastructure is crucial for the widespread adoption of electric vehicles. Government and private investments in charging stations, both public and private, help alleviate range anxiety and increase consumer confidence in electric car ownership. Changing consumer preferences towards sustainability and eco-friendliness drive demand for electric vehicles.

Increased awareness of the benefits of electric cars, such as lower operating costs and reduced dependence on fossil fuels, further boosts market growth. Japan electric car market is also influenced by global trends and developments in the electric vehicle industry. Collaboration and partnerships with international companies, as well as access to global supply chains for key components, shape the competitiveness of Japanese electric vehicles in the global market.

EV Supply-Side Incentives

Grants for Research and Development

In Japan, there is a significant investment in Electric Vehicle (EV) Research and Development (R&D), with a particular focus on advancing battery technology and charging infrastructure for enhanced capabilities. Government support includes a commitment of $2.2 billion towards battery production and $1 billion in subsidies allocated to manufacturers such as Toyota, with the aim of strengthening the security of the supply chain.

Tax Incentives

As part of efforts to facilitate the transition from gasoline-powered vehicles to electric/hybrid cars, reducing the costs associated with lithium-ion batteries is crucial. Consequently, Japan is contemplating the implementation of tax incentives for companies that invest in facilities dedicated to producing emission-reducing batteries.

Financial Support for Charging Infrastructure

The Japanese government has earmarked a total of ¥12.5 billion (approximately USD 85 million) for the advancement of electric mobility in a supplementary budget for 2021, which significantly boosts the Japan Electric Car market growth. Within this allocation, ¥6.5 billion (USD 59.5 million) has been designated for the establishment of new charging stations, while ¥6 billion (USD 54.9 million) is allocated for the development of additional hydrogen filling stations.

Incentives for Government Procurement

Japan's Act on Promoting Green Purchasing establishes a robust framework for environmentally friendly procurement practices. Government agencies are mandated to adhere to this framework across various product categories, including xEVs (electric vehicles), encompassing passenger cars, buses, and trucks, which are integrated into the procurement database.




2027(Starting Point)
2030


Conventional
63.60%
30 – 50%


Next-Generation
36.40%
50 – 70%


Hybrid
31.60%
30 – 40%


Electric
0.41%
20 – 30%


Plug-in-hybrid
0.82%
20 – 30%


Fuel-cell
0.02%
0 – 3%


Clean
3.50%
5 – 10%



Potential Challenges in Japan Electric Car Market
Japan's electric vehicle charging infrastructure is trailing behind many other nations. As of 2021, the country had only approximately 29,000 public charging stations nationwide, with a considerable number of them being in poor condition. Rural areas, in particular, suffer from a significant lack of charging stations. Japan has a mere 160 hydrogen refueling stations for fuel cell vehicles. While there are 7,600 quick chargers available, more than 40% are located in car dealerships, making them difficult to access. 18 geographical areas lack charging facilities within a 44-mile radius along highways, and 60 areas along major roads lack charging facilities within 25 miles, discouraging the adoption of electric vehicles.

Rather than increasing, the number of charging stations is decreasing, which significantly challenges the Japan Electric Car Market. The stringent safety regulations surrounding high-output chargers above 200 kilowatts result in elevated costs. Installing 200 kW charging equipment entails significant expenses, including tens of millions of yen for installation and ongoing operational costs. While the Japanese government subsidized 67% of charging stations constructed between 2013 and 2016, private sector interest has been limited since then. Consequently, as of February 2023, there were 800 fewer charging stations compared to March 2020. Despite the limited charging infrastructure in Japan, it has not yet strained the national grid.

Lithium-ion batteries face challenges in grid-scale energy storage due to degradation, cost, and safety issues, as has been observed in other countries. Although they offer relatively high energy density compared to other battery types, they still fall short of the energy density of gasoline. The heavy reliance of the battery industry on materials such as lithium, nickel, and cobalt raises cost concerns. Factors such as increasing demand and supply disruptions, such as the Chilean mine disaster in 2010, have led to soaring lithium prices, with projections indicating a 40-fold demand increase by 2040. Global trade barriers also pose challenges to Japan's export-oriented model, necessitating domestic technology retention and improvements in the supply chain, which is expected to limit the Japan Electric Car market growth.

Mainstream lithium iron phosphate and ternary lithium batteries have energy density limitations that restrict their applications and development. Safety concerns include the risk of thermal runaway from overcharging, lithium precipitation, and electrolyte overheating during rapid charging, which lead to combustion. Temperature fluctuations affect battery performance, with low temperatures increasing viscosity and reducing energy output, and high temperatures destabilizing battery interfaces. This impact performance in regions with extreme temperatures, such as Hokkaido in Japan, where batteries rated for full capacity at 27°C (80°F) only deliver 50% capacity at -18°C (0°F).
Japan Electric Car Market Segment Analysis
Based on Vehicle Type, the market is segment into Battery-Electric Cars, Plug-in Hybrid Electric Cars, and Fuel Cell Electric Cars. Battery-Electric Cars segment dominated the market in 2023 and is expected to hold the largest Japan Electric Car Market share over the forecast period. The Battery Electric Vehicle (BEV) segment represents a category of electric vehicles (EVs) that rely solely on electric batteries as their primary source of power. These vehicles do not have an internal combustion engine (ICE) and operate entirely on electricity stored in their batteries. Battery-electric vehicles operate solely on electricity and eliminate the need for gasoline, utilizing a large battery to power one or more electric motors. Presently, these vehicles offer a driving range spanning from 80 to over 300 miles, a range that continues to expand with the introduction of new models.

In addition to bypassing gas stations altogether, battery-electric cars demand minimal maintenance compared to their gasoline counterparts, omitting tasks such as oil changes, smog checks, spark plug replacements, and the replacement of various parts that deteriorate over time. Charging a battery-electric vehicle is conveniently carried out at home using standard 120-volt or 240-volt household plugs, or alternatively at public or workplace charging stations. One advantage of battery-electric cars over plug-in hybrids lies in their ability to utilize DC fast chargers, which provide over 100 miles of range in just 30 minutes.

Based on End-User, the market is segmented into Individual Consumers, Fleet Owners and Operators, Car Rental Companies, and Others. Individual Consumers segment dominated the market in 2023 and is expected to hold the largest Japan Electric Car Market share over the forecast period. Individual consumers choose electric cars for a variety of reasons. Some are motivated by environmental concerns and a desire to reduce their carbon footprint by driving a vehicle with zero tailpipe emissions.

Others are attracted to the technological innovation and advanced features offered by electric vehicles, such as instant torque, quiet operation, and regenerative braking. Many individual consumers are drawn to electric cars because of the potential cost savings compared to traditional gasoline-powered vehicles. While electric cars have a higher upfront purchase price, they typically have lower operating costs over the vehicle's lifetime due to savings on fuel and maintenance. Electric cars generally require less maintenance, as they have fewer moving parts and do not require oil changes or tune-ups like internal combustion engine vehicles.
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Japan Electric Car Market


Report Coverage
Details


Base Year:
2023
Forecast Period:
2024-2030


Historical Data:
2018 to 2023
Market Size in 2023:
US $ 37.07 Bn.


Forecast Period 2024 to 2030 CAGR:
16.88%
Market Size in 2030:
US $ 110.46 Bn.


 Segments Covered:
By Vehicle Type
Battery-Electric Cars
Plug-in Hybrid Electric Cars
Fuel Cell Electric Cars


By End User
Individual Consumers
Fleet Owners and Operators
Car Rental Companies
Others



Leading Japan Electric Car manufacturers include:
1. Toyota Motor Corporation
2. Nissan Motor Corporation
3. Mitsubishi Motors Corporation
4. Subaru Corporation
5. Mazda Motor Corporation
6. Daihatsu Motor Co. Ltd
7. Volvo Car Japan Ltd
8. Suzuki Motor Corporation
9. Others
Frequently asked questions:
1. What is an electric car?
Ans: An electric car is powered by an electric motor instead of a traditional internal combustion engine (ICE) that relies on gasoline or diesel. These cars run entirely on electricity stored in rechargeable batteries.

2. Why are electric cars gaining popularity?
Ans: Electric cars have gained popularity due to their potential to reduce greenhouse gas emissions and reliance on fossil fuels, especially when powered by renewable energy sources such as solar or wind.

3. Which country is leading the electric car market?
Ans: Japan is expected to lead the global electric car market. It is the third-biggest car maker globally and has been supportive of electric vehicles as part of its efforts to reduce greenhouse gas emissions and dependence on fossil fuels.

4. What are the challenges faced by electric car batteries?
Ans: Electric car batteries face challenges such as degradation, cost, safety issues, and energy density limitations. Factors like the heavy reliance on materials such as lithium, nickel, and cobalt raise cost concerns, while safety risks include thermal runaway and temperature fluctuations impacting battery performance.

5. Which segment dominates the electric car market in Japan?
Ans: The Individual Consumers segment dominates the electric car market in Japan. Individual consumers choose electric cars for various reasons, including environmental concerns, cost savings, and advanced technological features. They are expected to continue driving market growth in the future.