Japanese Automakers Face Stay-or-Go Decision in China

During the first half of their fiscal year—the period from April to September—Honda, Nissan, Mazda, Mitsubishi Motors and Subaru reported year-over-year declines in auto sales in China. Toyota’s China sales volumes were little changed from a year earlier but the automaker flagged the market as one of particular concern.

Among the worst cases, Mitsubishi sales in China fell 60%, while Subaru and Nissan were down 37% and 20% respectively.

Foreign automakers, including Japanese brands, are increasingly being edged out of China by local rivals including EV leader BYD. As battery-powered vehicles take a bigger chunk of the market, Chinese companies collectively are for the first time selling more passenger cars than foreign brands.

This year BYD overtook Volkswagen for the first time to become the best-selling car brand in China. Tesla was the only American brand on the list of top-10 vehicle sellers in China in the first half of this year, as Ford and others have reduced investments there.

Still, VW and General Motors remain committed to China with plans for EV rollouts.

Mitsubishi said last month it would withdraw from its joint operation with Guangzhou Automobile Group, ending production in China. The announcement came after Mitsubishi sold only 31,826 vehicles in the country in the previous year, down from 123,581 units in 2019 before the pandemic.

“The shift to electric vehicles is accelerating faster than expected, and consumers’ brand and segment choices have changed significantly," said Kentaro Matsuoka, Mitsubishi’s chief financial officer.

Changing dynamics in the world’s biggest car market are leaving Japanese automakers more dependent on the U.S., where sales are booming. Thanks to strong demand in the U.S., Toyota, Mazda and Subaru all raised their operating-profit forecasts for the current year by around 40% or more.

Mazda on Tuesday slightly lowered its global sales-volume forecast despite projecting much higher sales in the U.S., blaming poor performance in China and Thailand. Chief Financial Officer Jeffrey Guyton said that in the two Asian countries, strong EV sales momentum drove down demand for Mazda’s gasoline-powered cars.

After spending decades building businesses in China, Japanese automakers recently have been in cutback mode. Over the past year, Toyota has dismissed contracted factory workers in the country and Honda and Nissan have slashed output at their Chinese factories.

Mitsubishi’s exit follows the decision last year by Stellantis NV to end a joint venture that made and distributed its Jeep brand in China. So far, no other Japanese automakers have followed Mitsubishi.

Many, including Nissan, are counting on new EVs slated to debut in China over the next few years to help turn the tide. Mazda’s Guyton said the carmaker would keep its sales network in China intact for now in anticipation of new models it plans to release.

Still, executives at several companies say they are examining whether resources may be better spent trying to stay ahead in longtime Japanese strongholds such as Southeast Asia, where Chinese automakers have been flooding the market with low-cost EVs.

Doubling down on its core Southeast Asia market was a goal cited by Mitsubishi when it pulled out of China. It plans new models for Southeast Asia including pickup trucks.

Among Japanese automakers, Toyota was the only company that maintained its sales volumes in China during the April-September fiscal half-year, though the company reduced its forecast for annual deliveries in Asia owing to uncertainty it said it sees in China, Thailand and Vietnam.

Toyota expects to sell fewer EVs in China this year owing to fierce competition but is maintaining sales volumes thanks to steady demand for its gas-electric hybrid vehicles, Chief Financial Officer Yoichi Miyazaki said.

In Southeast Asia, and other regions, “Chinese automakers will likely continue to strengthen their exports of EVs and expand their operations," Miyazaki said. The question for Toyota is when to introduce new EVs in the market and consider local production, he said.

Write to River Davis at river.davis@wsj.com