Japan Watches Samsung Chip Away at Its Car Makers

The Wall Street Journal – Nov 15, 2016 – TOKYO— Samsung Electronics Co.’s planned $8 billion acquisition of U.S. auto-parts supplier Harman International Industries Inc. has exacerbated fears in Japan that its makers of cars and car parts will get left behind in the auto-technology race.

“This is an industry that is changing very rapidly,” industry minister Hiroshige Seko said Tuesday when asked about the Samsung deal.

“Alliances are being forged across industries. Japan needs to work on this technology with a clear strategy in mind.”

The nation is spooked by its poor record in dealing with technology shifts that upturn industries. Its companies once were leading cellphone makers, but Apple Inc.’s iPhone decimated Japanese handset makers who made a belated and ultimately doomed push into the smartphone business.

Japan’s chip makers, while still strong in some areas, no longer rule the world as they did a quarter-century ago.

As the home of Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co., Japan can ill afford to let companies in nations such as the U.S. and South Korea get control of the core technologies behind self-driving and internet-connected vehicles. Exports of cars and their parts accounted for 20% of Japan’s total exports last year.

“The fate of the Japanese economy depends on the ability of the automobile and electronics industries—the two pillars of the nation’s economy—to continue to produce high-value-added products,” said a report this year from the Ministry of Economy, Trade and Industry.

“If these industries become mere subcontractors for global software giants that supply and operate platforms for other companies to build their businesses on, Japan would be stuck with manufacturers without any high-value-added content,” the report said. In October, METI secured about $195 million in funding to help companies study artificial intelligence for uses such as autonomous driving.

Recent deals show Toyota’s key suppliers are trying to ramp up their abilities in the same areas spotlighted by the Samsung-Harman deal.

In September, Renesas Electronics Corp., which is majority-owned by a Japanese government-backed fund, said it would buy U.S. chip maker Intersil Corp. for about $3.2 billion, a deal executives said was aimed at strengthening the automotive business.

Mr. Seko, the industry minister, said in a recent interview that the government might keep control of Renesas to ensure that its autonomous-driving technology stays in Japanese hands.

“The government will have to take the lead if Japan wants to compete with behemoths like Google,” he said.

Panasonic Corp., the Japanese electronics maker, was among those that failed at the smartphone business. It now gets more than a third of its revenue from automotive and industrial systems, including from batteries sold to Tesla Motors Inc.

Panasonic this week disclosed plans for a car system that would replace mirrors with video monitors, following the purchase of a Spain-based component maker last year.

Toyota itself plans to spend at least $1 billion over the next several years on self-driving car research, after years of resistance to the idea and trailing similar announcements from competitors. The company aims to build cars that can drive on highways by themselves by 2020.

The research “is key to our competitiveness,” said Masato Minakata, a Toyota engineer working on new technologies.

One fear of Japanese makers is losing control of the software at the center of “connected cars” that can offer smartphone-like services such as information about nearby destinations.

That is an area where Samsung will gain ground with the Harman acquisition. Harman executive Mike Tzamaloukas said earlier this year that the company hoped to play a key role in building connected cars, which he said “will be the enablers for the semiautonomous and eventually the autonomous car.”

Toyota outlined earlier this month a plan to connect nearly all its vehicles in the U.S. and Japan to the internet by 2020. That would help it branch out into other businesses like ride- and car-sharing, said Shigeki Tomoyama, a Toyota executive in charge of connected car development. “The manufacturer has to become a platform provider, as cars become information terminals,” he said.

The technology push is forcing Toyota, Nissan and other Japanese car makers to change business models that revolve around tight and long-term supplier relationships.

Nissan’s self-driving technology, ProPilot, uses a camera developed by Michigan-based TRW and a customized version of image-processing software from Israel-based Mobileye NV. Nissan wants to source the best technology and won’t necessarily rely on traditional suppliers, said a company spokesman.

Mr. Minakata, the Toyota engineer, said, “Japanese car makers in general, and we are no exception, have the tendency to want to be self-sufficient and prefer to work with companies that we know well.” Now, he said, “you need to bring in new technologies from somewhere completely different.”

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