EV revolution puts the squeeze on small Japanese suppliers

Fuji Oozx Inc. is one of hundreds of automotive-parts suppliers in Japan whose very existence is being threatened by the world's shift toward electric vehicles.

For almost 70 years, the company has been making intake valves, essential components of any gasoline car. They control the flow of gas in and out of an engine's cylinder. Typically made of copper, they're light and highly heat resistant and use a decades-old technology that's not needed in any electric car.

"We have to start looking for a new business," President Satoshi Tsujimoto said from his office adjacent to Fuji Oozx's factory in Shizuoka prefecture, an elongated region that traces the coast of the Pacific Ocean. Fuji Oozx supplies automakers including Toyota Motor Corp. and Nissan Motor Co.

Valves for boat engines are one option, but the company's board is also looking further afield, such as branching into medical devices. "We have no choice but to fight for survival. We'll have to find an answer in the next decade."

Tsujimoto's predicament is one that other suppliers of traditional auto parts around the world are confronting as the industry accelerates its pivot from the combustion engine. They either make the shift, too, or find new avenues of business. The situation is particularly acute in Japan, where the government has pledged to go carbon neutral by 2050. A key part of that will be transitioning to cleaner cars, which currently make up only about 1 percent of vehicles, compared with 30 percent in parts of China, the global EV trailblazer.

Management consulting firm Arthur D. Little predicts that as many as 300,000 jobs may disappear in Japan if the automotive sector makes a full shift to EVs, equal to about 10 percent of all current jobs in the industry. In the U.S., it's estimated some 75,000 jobs could be lost if battery-electric vehicles make up around 50 percent of domestic auto sales by 2030.

"It's the boiled frog phenomenon," Arthur D. Little consultant Kensuke Sobue said. Japan risks slowly but surely losing jobs as other countries, notably China, nurture the EV sector, creating employment opportunities.

Shizuoka is home to suppliers that count some of the industry's biggest names as clients. It's one of Japan's key hubs for combustion-engine car-part manufacturers, accounting for more than half the prefecture's supply chain in 2018, figures from the Shizuoka Economic Research Institute show.

It's hard to see how suppliers can hold back the rising electric-car tide.

Honda has said it won't sell combustion-engine cars beyond 2040 and has urged suppliers to get on board. Even Toyota, something of a laggard when it comes to going all electric, rolled out a new battery-electric-vehicle series, Toyota bZ, in April as it works to eventually establish a full lineup of EVs, which would include hybrids and fuel-cell cars, starting with 70 models by 2025.

Conventional cars have about 30,000 parts, far more than electric ones, which can run without engine blocks, fuel pumps or mufflers. There's competition also from China, where small, cheap electric cars are being mass-produced in the thousands.

Authorities in Shizuoka are cognizant of the coming revolution. In 2018, they set up a next-generation car institute to help parts makers develop EV components. The body gets funding from Japan's Ministry of Economy, Trade and Industry to assist businesses with the transition.

"We've felt this sense of crisis well before Japan's carbon-neutral announcement," said Eiji Mochizuki, the research institute's head. But while larger suppliers are making plans to adapt, smaller ones are still sleeping, he said. "We're trying to wake them up."

That may be easier said than done. Many smaller suppliers are already surviving on razor-thin margins, a function of the tactics employed by powerful buyers such as Toyota, which often pit parts makers against each other and select the one that can make widgets the cheapest. Spare cash to expand into another area doesn't exist.

"Honestly, it'll be hard to survive," said Masakatsu Suzuki, who owns Masa Engineer, a small business that makes equipment to assemble and check auto parts. "I wish I could actively make a move."

Suzuki has been in business for about 25 years. He worries about how he'll pay his four workers as EVs become more popular, automobiles he likens to cheap panda cars at amusement parks: "All you need is a battery, a steering wheel and a chair."

Others simply don't see EVs as an immediate threat.

Yaichi Sakai runs Hamamatsu Gasket, a family business passed down by his father. Among other things, the 67-year-old company makes cylinder-head gaskets, which provide the seal between an engine block and cylinder head that prevents coolant or engine oil from leaking into the cylinders. Although cylinder-head gaskets aren't needed in EVs, other sorts of seals are, to shield an electric car's motor from dust and water.

"I don't have a sense of crisis now because gas-powered cars aren't going to be zero immediately," Sakai said.

He estimates about 20 percent of Hamamatsu Gasket's products won't be necessary in an EV era but says sticking to parts for engines is still more profitable in the short term.

"Small companies like us don't have the financial strength," said Sakai, who dropped out of high school to learn the trade. "We just have to focus on the task in front of us."

Takaaki Iwabu contributed to this report.