Foreword:

For the past half-century, the 'invisible moat' of Japanese cars lay in their industrial system hidden deep within the vehicle bodies: Toyota, Honda, and Nissan defined product standards, while Denso, Aisin, and Koito provided core components. The multi-tiered supplier network, resembling precision gears, operated through stable quality, ultimate (ultimate) cost control, and unbreakable collaboration, underpinning Japanese cars' global dominance.

However, in the era of smart electric vehicles, this once-impenetrable defense is collapsing from within.

Author | Fang Wensan

Image Source | Internet

Blood-Red Warning: The Collective Collapse of Japan's Supply Chain

Having reaped the benefits of Japanese cars' global expansion, the industry now faces simultaneous challenges of order fluctuations, rising costs, technological shifts, and procurement system restructuring.

The stable relationships of the fuel vehicle era are becoming a heavy burden in the electric vehicle era.

In May 2025, a report from Japan's Teikoku Databank exposed the industry's vulnerabilities: 32 Japanese auto parts manufacturers went bankrupt in FY2024, a 33.3% year-on-year surge and the highest in a decade, with over 60% being small, medium, and micro enterprises with debts under ¥100 million.

Marelli Holdings filed for bankruptcy protection twice in three years, Mitsubishi Electric divested its entire auto parts business for ¥10 billion, motor giant Nidec abandoned its E-Axle product line entirely, and Toyota's core supplier Aisin Seiki slashed its FY2026 operating profit forecast by 31.7%...

From long-established SMEs to industry giants, Japan's auto parts sector is experiencing a rare 'collective hemorrhage.'

The driving force behind this bloodshed is none other than the Japanese automakers they have followed for decades.

The most iconic case is GAC Toyota's bZ4X (Platinum 3X), a pure electric SUV launched in March 2025. With cumulative sales exceeding 70,000 units in 10 months, it marked Toyota's best-performing pure electric model in China.

However, a teardown reveals a shocking fact: its power battery comes from BYD and CALB, intelligent driving algorithms are provided by Momenta, LiDAR by Hesai, domain controllers by Desay SV, and Chinese parts account for nearly 90% of the vehicle. Almost all traditional Japanese suppliers failed to secure core orders.

Toyota's 'pivot' is not an isolated case: Nissan's N7, developed by a Chinese team, fully adopts Chinese solutions for its three-electric systems and smart cockpit; Honda plans to fully utilize model platforms developed by its Chinese joint venture partners by 2028.

According to Nikkei statistics, the sales-weighted average price gap between BYD and Toyota's pure electric models was around ¥2 million in 2022. By 2025, with Japanese cars large-scale (massively) adopting Chinese parts, this gap narrowed to ¥200,000—equivalent to the down payment for a basic Japanese compact car—no longer a decisive barrier for consumers.

The synergistic relationship between Toyota and suppliers like Denso and Aisin was once hailed as a model of Japanese manufacturing.

Today, Toyota's electric vehicles sold in China heavily rely on Chinese batteries, intelligent driving systems, sensors, domain controllers, and local development capabilities.

Nissan disclosed that the Dongfeng Nissan N7 is the first model built on its new modular architecture designed specifically for electrified vehicles, developed and produced in China.

This means Nissan's new energy products in China increasingly depend on Chinese teams, platforms, and supply chains.

When Toyota, Nissan, and other Japanese automakers actively shift toward China's local supply system, Japanese suppliers face not just order fluctuations but a fundamental change in procurement logic.

In China's smart electric vehicle market, cost, speed, configuration, and experience are all recalculated on a single table.

As long as Chinese suppliers can deliver sufficiently reliable products, faster responses, and lower costs, Japanese automakers find it difficult to continue procurement based on old habits.

Triple Crushing: Japanese Supply Chain's Lopsided Defeat

Japanese suppliers' collapse stems from a comprehensive loss across cost, speed, and quality dimensions.

① Insurmountable Cost Gap: Chinese auto parts companies leverage systemic advantages from economies of scale, industrial clusters, and automated production lines.

According to multiple Japanese media estimates, Chinese manufacturers' costs are 30-40% lower than Japanese firms for similar products.

For an electric vehicle with a BOM cost of ¥100,000, parts (parts) procurement alone can save ¥30,000-40,000—a gap that no management optimization or marketing compression can bridge.

② Crushing Response Speed: In the electric vehicle era, annual model refreshes are the baseline, and failure to update within three years means being forgotten by the market. Chinese companies take an average of 10 months from order receipt to mass production, while Japanese firms typically require over 18 months.

This six-month gap, negligible in the fuel vehicle era, means missing an entire product generation in the electric vehicle sector. When automakers are already planning their next refresh, Japanese suppliers are still debugging molds for the previous model.

③ Erosion of the 'Japanese Quality' Barrier: Toyota Gosei Vice President Hiroshi Yasuda openly admitted: 'The quality gap between Chinese and Japanese parts no longer exists.'

When costs are 40% lower, speeds are six months faster, and quality is comparable, automakers find no reason to continue paying a premium for 'Made in Japan.'

Keiretsu's Twilight: From Moat to Maginot Line

The deeper malaise lies in the DNA of Japan's automotive industry, centered around a unique keyword: series (Keiretsu).

This pyramid structure features automakers at the apex and suppliers in multi-tiered subcontracting networks. Automakers bind core suppliers through cross-shareholding and long-term transactions; suppliers, to secure orders, even set up production lines inside automakers' factories, resembling vines clinging to trees.

This system created miracles in the fuel vehicle era, with automakers setting technical standards and suppliers investing in dedicated equipment, forming an ultimate (ultimate) lean production capability through decades of refinement.

The durability reputation of Japanese cars is essentially a product of this system. However, in the electric vehicle era, this former 'moat' has become a 'Maginot Line' trapping them.

Electric vehicles replace hundreds of precision parts like internal combustion engines, transmissions, and exhaust systems with just three components: motors, batteries, and electronic controls, directly undermining the traditional Japanese supply chain's survival foundation.

More fatally, structural flaws exist: Keiretsu suppliers are highly dependent on single clients: Over 80% of Marelli's orders come from Nissan and Stellantis, while 64% of Wanbao Jing's sales rely on Nissan.

When automakers incur losses, the entire supply chain collapses.

Meanwhile, innovation incentives are misaligned in this system: Suppliers aim not to 'create the best product' but to 'create the product most compliant with Toyota's requirements.' When Toyota long bet on hybrids and reacted slowly to pure electric routes, the entire supply chain followed into the same trap.

This binding acts like a safety rope during favorable periods but becomes shackles during downturns.

As Chinese electric vehicle companies rapidly disrupt the market with new architectures, vertical integration, and open supply chains, Japanese automakers look back at their supply chains and find this once-reliable system can no longer support the speed and pricing demanded by the Chinese market.

Thus, automakers turn to external suppliers; suppliers are forced to seek new clients. The old system hasn't collapsed immediately, but cracks are clearly visible.

Shift of Power: Chinese Supply Chain Wins on Speed and Density

From project initiation to market launch, cross-border automakers once needed three to four years for a smart electric vehicle. In China, the mainstream timeline has compressed to two years or even shorter.

Cockpit chips, LiDAR, domain controllers, battery packs, thermal management, three-electric systems, in-vehicle ecosystems, and advanced driving assistance solutions all have mature suppliers in China, many willing to rapidly iterate, revise, and reduce costs alongside automakers.

Japanese supply chains excel at certainty; Chinese smart electric vehicle supply chains excel at rapidly approximating demand.

The Chinese market resembles a high-speed rolling battlefield, where models receive continuous OTA updates, configurations iterate based on competitors and user feedback, and pricing systems are constantly recalculated. Suppliers must keep pace with automakers.

In the fuel vehicle era, a car's 'nationality' was determined by brand, engine, transmission, and production system. In the smart electric vehicle era, competitiveness hinges on batteries, software, algorithms, and supply chain response speed.

A Toyota-branded electric vehicle might use Chinese batteries, intelligent driving systems, and cockpit solutions, developed and produced in China, and even exported globally from China.

A car's nationality is blurring, but the power boundaries of the industrial chain are becoming clearer. China's market, once a sales terminal for multinational automakers, is now transforming into a testing ground for electrification, intelligence, and low-cost manufacturing.

Survival and Rebalancing: Japanese Cars Haven't 'Surrendered'

The conclusion that 'Japanese cars are becoming Chinese cars' is not black-and-white.

The Toyota Platinum 7, set to launch in 2026, will increase the proportion of Japanese parts to around 30%. This figure sends a clear signal: Japanese automakers' shift is a dynamic 'rebalancing,' not a one-sided collapse.

In sectors like motors, power semiconductors, and high-end precision sensors, Japanese suppliers still maintain deep technological barriers.

Facing the upheaval, Japanese automakers have taken two distinct survival paths: Mitsubishi Electric divested low-profit parts businesses to focus on high-end sectors like silicon carbide power semiconductors.

Nissan adopted a more aggressive approach, closing seven global factories, laying off 20,000 employees, and fully shifting its new energy R&D and production capacity to China, positioning the country as its 'global new energy innovation and export hub.'

These two paths, though different, point to the same direction: acknowledging reality and repositioning.

Japanese firms can no longer compete in standardized parts but still hold cards in high-value-added core technologies and globalization capabilities.

Conclusion:

Japanese cars once ushered the global automotive industry into the lean manufacturing era. Today, China's supply chain is propelling it toward the smart electric era.

The next phase of competition hinges on integrating reliability, cost, speed, software, and ecosystems.

The automotive industry's playing field has changed. The true survivors will be those who adapt fastest to the new rules.

Partial references: OFweek New Energy Vehicle Network: 'Mitsubishi Electric 'Cuts Arms' to Exit, Lessons from Japanese Giants' Collapse for Chinese Automakers,' Nikkei BP: 'Toyota and Nissan Rapidly Expand Adoption of Chinese Parts, Japanese Anxiety,' Auto Business Review: 'Japanese Cars Surrender Their Soul to China, Japanese Supply Chain Bankruptcies,' Automotive R&D: 'Japan's Musashi Precision Secures Major BYD Order to Manufacture Parts.'