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Thursday, November 19, 2009

Electric Cars Push Japan Engine Parts Makers to Crisis Mode

Auto supplier NTN Corp. knew its gasoline engine parts wouldn’t be needed in Nissan Motor Co.’s Leaf electric car. So the component maker’s engineers built a mock model to test a motor-and-brake system it developed for electric vehicles.

“If old-guard companies like us just continue along the same beaten path, things will become difficult,” Chairman Yasunobu Suzuki said. “I told our engineers to try everything.”

As Nissan and General Motors Co. prepare to introduce battery-powered cars next year, traditional auto suppliers like Osaka-based NTN are trying to adapt by creating new lines of business. Engine components account for as much as 40 percent of a typical car’s total parts, so some suppliers are scrambling to come up with new products, said Takeshi Miyao, a Tokyo-based analyst for car consultant Carnorama.

While internal-combustion engines currently power more than 99 percent of cars built globally, their share can only fall as electric cars enter the market, Miyao said. That will intensify price competition and lower profits for manufacturers.

“If you’re a parts maker that can’t expand market share, then you can’t grow without entering new businesses,” he said.

‘Crisis-Like Situation’

Tsubakimoto Chain Co., an Osaka-based maker of chains that link engine components, also is shut out of the market for electric cars, which are powered by a lithium-ion battery and electric motor. About 30 percent of Tsubakimoto’s $1.6 billion in sales last fiscal year were in auto parts, all of them for gasoline engines.

“It’s a crisis-like situation,” said Toru Fujiwara, head of Tsubakimoto’s auto-parts division. “With electric cars, there’s no way we can apply our current technology.”

Tsubakimoto is exploring making parts for battery-powered vehicles and talking with its customers, which include Nissan, Fujiwara said. The company plans to spend $40 Million on research in the fiscal year ending in March.

“We have to come up with completely new technology,” he said, declining to name possible products.

NTN, which makes bearings for gasoline engines, said in September it will raise as much as $267 million from selling new shares and invest the proceeds in research and development, and in affiliates. About 60 percent of its sales are in car components, the company said.

Better Batteries

NTN spends about 3 percent of sales, expected to be $5.3 billion this fiscal year, on research, it said. The company is seeking patents on electric-car related products.

The new market is luring companies to the auto business for the first time.

Daikin Industries Ltd., the world’s second-biggest air conditioner maker, is applying its expertise in fluorine, now used to power cells for personal computers and mobile phones, to make electric car batteries safer and longer-lasting.

Daikin, based in Osaka, expects battery-related sales of fluorine to increase more than 10 times by 2017 to $112 million, said Guntaro Kawamura, executive vice president.

Motor makers such as Nidec Corp. of Kyoto may be the biggest winners, Miyao said. Cars typically have about 100 motors powering wipers, air conditioners and door mirrors, among other features.

Motor Makers

Overflow energy from a gasoline-powered engine helps power heaters and fans, so there’s a need for double the number of motors in engineless electric vehicles, he said.

“We are definitely developing motors for electric cars,” said Norio Tamura, a spokesman for Nidec, the world’s biggest maker of motors for hard-disk drives.

President Shigenobu Nagamori is aiming for total revenue to rise from $6.4 billion this fiscal year to $11 billion by fiscal year 2012, with $4 billion coming from car-related motor sales.

The company is opening its biggest research-and-development facility in Shiga prefecture, in western Japan, on Nov. 24, Tamura said.

He declined to say whether the company already makes parts for Nissan’s Leaf. Nissan doesn’t disclose most suppliers for the car. Its lithium-ion battery is made by AESC, a venture between Nissan and NEC Corp.

GM, Toyota

Nissan Chief Executive Officer Carlos Ghosn said electric cars will comprise at least 10 percent of global demand by 2020, assuming oil costs more than $70 a barrel. It traded at $79.84 on Nov. 18.

General Motors Co. plans to build as many as 60,000 Chevrolet Volt plug-in electric cars annually starting in November 2010. Toyota Motor Corp., the world’s biggest carmaker, plans to build a plug-in model for retail buyers in 2012.

Obama Goal

U.S. President Barack Obama is aiming for 1 million plug-in cars on roads by 2015 to curb emissions and dependence on foreign oil. Japan Prime Minister Yukio Hatoyama pledged to cut emissions 25 percent by 2020 from 1990 levels.

“The shift to electric cars may be more dramatic than people think,” Kawamura said. “The auto industry will need to shoulder much of that cut.”

Traditional suppliers must balance innovations with meeting their customers’ immediate demands as improving fuel efficiency is a top industry priority, according to Tsubakimoto’s Fujiwara.

Still, suppliers should not delay expanding to meet the potential surge in electric-car demand, said Hisataka Nobumoto, chairman of the Japan Auto Parts Industries Association that includes NTN.

“As current technologies and businesses are reassessed, decisions on where and how to pursue new areas must be made as early as possible,” he said. “By doing so, survival may be possible.”

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