TOKYO – It’s hard to decide who had a worse September 22, Elon Musk’s Tesla or Kazuhiro Tsuga’s Panasonic.
Musk’s stumble that day surely garnered the most headlines. Investors gave the thumbs down to his “Battery Day” presentation, which was bold on spin but hazy on how Tesla would make cheaper, mass-market cars in short order.
Tesla shares promptly lost their fizz, wiping out tens of billions of market value.
“While we applaud the company’s ambitious plans, we believe it is an inherently risky move with steep execution and operational challenges,” says analyst Rajvindra Gill of Needham & Co.
Tsuga’s Panasonic took its own knocks in the market that day, courtesy of Tesla. Musk, it appears, is tossing a once-valued partner under the proverbial bus. His plans to focus on in-house battery production to save costs have Panasonic investors worried about the fate of Tesla’s longtime cell supplier.
Yet on the same day Panasonic was reeling from Tesla uncertainty, it had a dose of good news. The 102-year-old Japan Inc icon came second in the number of battery patents in the most recent joint study from the European Patent Office and the International Energy Agency.
In overall patent applications, Panasonic trails No 1 Samsung Electronics, while South Korea’s LG Electronics was third. Samsung had 4,787 to Panasonic’s 4,046 and LG’s 2,999. If you are focused on future-based sectors, one race worth watching is in batteries.
East Asia’s No 2 and No 4 economies, Japan and South Korea, are locked in fierce competition for leadership in the space. And at the moment, South Korea has the advantage. Japan Inc has its work cut out to dominate the innovation that is essential to charging up the broader use of electric vehicles.
Yet Japan is leading South Korea in one respect: the number of international battery patent applications it holds. Japan’s most recent tally was 2,339 battery-related inventions, nearly twice South Korea’s 1,230. China ranked fourth, with the US in the fifth position.
Who is churning out this research?
After Samsung, Panasonic and LG, you have Toyota Motor in fourth place and Hitachi and Sony helping to round out the top-10. The number of international patents in electricity-storage has risen to 7,153 inventions from 1,029 in 2000.
Now the lithium-ion cells used in laptops and mobile phones account for 45% of battery cell patent applications.
Of course, Japan needs to turn potential into reality, particularly in the EV market. As the European Patent Office and the International Energy Agency study points out, “Japan’s leadership in battery technology has not yet translated into a large share of the global electric car market” like South Korea’s has.
That includes trailing China. With about 1.1 million EVs in 2019, the mainland accounted for half the global market. Japan? Only 2%.
Enter Shinjiro Koizumi, Japan’s environment minister since September 2019. He’s the son of Junichiro Koizumi, the prime minister who from 2001 to 2006 took the boldest steps in modern history to reform a rigid economy.
He mentored Shinzo Abe, who replaced him as premier in 2006. Abe served as prime minister again from 2012 until earlier this month.
Last year, with his Cabinet’s approval rating flagging, Abe brought in the youthful, dashing and telegenic Shinjiro Koizumi, 38 at the time, on board to inject some star power. Koizumi Jr is an outspoken advocate for pivoting Japan’s energy mix toward renewable energy.
Abe demurred, putting Koizumi in the awkward position of having to defend the government’s preference for coal-fired power plants, both at home and selling the technology abroad.
Koizumi may have more luck with Abe’s replacement, Yoshihide Suga. Though Suga was Abe’s loyal chief cabinet secretary for nearly eight years, he’s not known, unlike his predecessor, to be doggedly pro-nuke.
Two post-Abe narratives have Japan’s energy community buzzing about big policy changes to come.
One, Suga says he’s determined to cut vested interests out of the regulatory and legislative process. That includes taking a new look at Japan’s energy mix without deferring to industry lobbyists.
None is more potent than the so-called “nuclear village” – the nexus of pro-reactor lawmakers, investors and academics that comprise Japan’s answer to America’s military-industrial complex.
Any move to de-emphasize the nuclear lobby would be an epochal reform roughly on par with Junichiro Koizumi privatizing that sprawling bureaucracy known as Japan Post.
The second event happened on September 15, just as Abe’s entire cabinet was resigning in preparation for Suga to take power.
That day, Hitachi Ltd scrapped plans to construct a nuclear plant in the UK. Helping Hitachi and other Japan Inc icons sell reactors and related technology from India to Indonesia to Britain was a major focus of the Abe years.
With the UK project dead, Japan now has zero overseas nuclear projects in the pipeline.
Shinjiro Koizumi, in other words, now has an open mind sitting above him in the prime minister’s office and a new leader anxious to make Abenomics a success. Since 2012, Abe relied more on Bank of Japan easing for growth than steps to liberalize labor markets, cut red tape and devise a more pro-growth energy policy.
This last aspiration is where Koizumi and his ex-prime minister father come in. Both father and son have argued, persuasively, for morphing Japan into the world’s laboratory for replacing fossil fuels once and for all.
The drive is not only to address climate change, but to create new jobs to revive Japan’s aging, rigid economy.
Suga takes over at a moment when Japan’s options are dwindling, says Mark Cogan, professor at Kansai Gaidai University in Osaka. Koizumi’s worldview will “doom any resumption of nuclear energy,” Cogan says.
And Japan’s need for a new growth industry is putting ever greater pressure on the government.
Earlier this month, after Abe announced his resignation, Koizumi said Tokyo was working on “redesigning the energy sector,” championing renewable sources and new carbon-capture technologies.
That includes building carbon-neutral data and research centers and making a new EV push.
Incentivizing a surge in renewable-energy innovation is a no-brainer. No greater business opportunity exists in Asia than inventing and commercializing ways for China, India, Indonesia, the Philippines, Vietnam and elsewhere to develop their economies without choking on rapid growth.
Japan, long a leader in energy efficiency and innovation, is ideally suited to benefit as developing upstarts boom with the shift towards more renewables.
And in top-down Japan, the real push needs to come from the government, both in terms of money and incentives.
“Strong leadership and good policies are required to ‘build back better,’” says Jennifer Morgan, executive director of Greenpeace International. “Governmental support for businesses,” she adds, “must come with green conditions, and public funds in economic stimulus packages must support green technologies, goods, and services of the future.
“The cost of postponed or deprioritized green investment will lead to missing out on future business opportunities for companies and failing to create sustainable and quality jobs for the people of Japan.”
Renewable energy is an obvious area for Japan to catalyze a startup boom. There are myriad small companies, but few create genuine economic energy, jobs and wealth from the ground up to midsize status. Indonesia, for example, has already produced twice as many tech “unicorns” as Japan.
Still, Japan boasts decades of success in the realm of battery innovation. In 2014, when Tesla’s Musk set up his giant $5 billion lithium-ion production center in the Nevada desert, his first partnership was with battery pioneer Panasonic.
Masayoshi Son, the founder of SoftBank, invested tens of billions of dollars building vast solar farms and in other new technologies in India and beyond. He has been angling to help finance a thriving solar ecosystem in Japan to rival China’s.
Sadly, Abe’s government dragged its feet on giving him access to power grids to store energy.
Perhaps Suga will move more quickly. Arguably, all it would take is tweaking regulations and tax incentives. Suga, with Koizumi’s help, can do what Abe did not: roll out a government-backed venture capital scheme to increase innovation in batteries, solar, wind and geothermal power.
The new government could crib from the Silicon Valley playbook by incentivizing investors, universities and companies to collaborate and disrupt an economy losing competitiveness. Suga’s team should also seek to attract more foreign talent.
Such policies would do something the BOJ’s ultraloose monetary policy hasn’t: create new sources of growth to help Tokyo pay down its crushing debt load and increase productivity as the workforce shrinks.
Suga, of course, needs to ensure he’ll be around long enough to revive Japan’s innovative mojo. Announcing an energy revolution could be his ticket to victory should he call a snap election in the weeks ahead.
It could also set the stage for Suga’s eventual replacement – which many believe could be the charismatic Koizumi – to accelerate Japan’s transition to global energy leadership.
It matters, says analyst Nicholas Smith of CLSA Japan, that Koizumi is the “holder of the largest parliamentary majority in the party.”
Analysts at Fitch Solutions note that Koizumi’s “status as rising star” amid a cast of milquetoast rivals increases his odds of retracing his father’s footsteps to the premiership.
The handoff from Suga to Koizumi would become even more likely if this energy revolution captures the popular imagination of voters. Against this backdrop, there might be a silver lining from Tesla apparently upending its relationship with Panasonic.
The Japanese giant “may need to step up more R&D and is unlikely to have pricing power,” even if Musk’s in-house cells aren’t quite ready to replace Panasonic in short order, says analyst Atul Goyal of Jefferies Japan.
This, it follows, is likely to put Panasonic and its suppliers under pressure to catch up to Tesla in terms of technology and reducing costs. This shock could force Panasonic and its ilk to raise their competitive games – and to put all those forthcoming patents to good use.