With auto manufacturers pouring resources into self-driving technologies, major players in the electronics industry are finding it impossible to keep pace with the rapid changes that are unfolding.

And in what is surely a bitter irony, these companies are shedding their auto divisions one after another.

REALITY CHECK

In May last year, the famed temple town of Eiheiji in Fukui Prefecture introduced the first fully automated transportation system on public roads in Japan, albeit with some restrictions.

Mitsubishi Electric Corp. was responsible for ensuring there are no collisions or other accidents.

The company’s department for auto-related products generates nearly 20 percent of Mitsubishi Electric’s total sales of 4-5 trillion yen ($25.5-32.0 billion). The department’s workforce of 17,000 represents more than 10 percent of the Mitsubishi Electric group’s staff.

Despite a recent surge in sales, this core area of the Japanese conglomerate had been struggling with operating losses over the past several years. It ended up being wholly spun off as Mitsubishi Electric Mobility Corp. in April.

Traditionally, Mitsubishi Electric’s strength lay in its car navigation systems as well as ignition and other engine parts.

The arrival of next-generation technology for connected, autonomous, shared and electric (CASE) vehicles was a game-changer that threw a spanner in the works.

Practically overnight, demand sprang up for components with specific applications involving integrated circuitry, which in turn led to more rivalry.

Mitsubishi Electric made a strategic decision to focus on power transmission devices for EVs alongside advanced driver-assistance systems (ADAS).

In 2021, Mitsubishi Electric reclassified the auto equipment department as one of its important businesses.

It set a target of raising sales dramatically by fiscal 2025 with an upward goal of 2.5 times the figure for fiscal 2020.

Then came the hammer blow: Sales of EVs remained sluggish.

Soaring prices of raw materials followed, and then stagnant car production and difficulties in parts procurement, which all stemmed from the COVID-19 pandemic.

As a result, the department chalked up an annual deficit of several tens of billions of yen for several years until fiscal 2022.

Kei Uruma, the president of Mitsubishi Electric, announced that the company’s product prices were “inappropriate given their market value,” and called for a review of the pricing structure.

Buoyed by the weakening yen, Mitsubishi Electric recorded a net profit of 31.3 billion yen in fiscal 2023, putting its business back in the black--albeit barely--and signaling a revival of the auto department.

The business spin-off in April will see the role of the automobile section repositioned within Mitsubishi Electric.

The move was geared toward greater collaboration with business rivals as well as speedier decision-making and profitability.

Instead of doing everything itself, Mitsubishi Electric began seeking out corporate partners to spread the load.

For this reason, Mitsubishi Electric will soon pull out of two key areas: development of car navigation systems and vehicle-mounted speakers. Its rationale is that those features are apt to compete with smartphone apps, giving the company a limited number of customers.

DEARTH OF RESOURCES

Other key players in the electronics industry are also moving toward separating their auto-related sections from their main businesses.

Panasonic Holdings Corp. announced in March that it reached a deal to sell 80 percent of its shares of affiliated auto parts supplier Panasonic Automotive Systems (PAS) to a U.S. investment fund.

Panasonic’s car components department is a warhorse in the development of electronic toll collection (ETC) systems and in-car audio equipment with annual sales topping 1 trillion yen.

Kazuhiro Tsuga, a former president of Panasonic Holdings, took the initiative in this area, viewing it as a novel source of revenue.

His objective was to offset the company’s dwindling sales in home appliances as dramatic growth in that area was a thing of the past due to intense competition.

The effort paid off to some degree once the EV battery section was siphoned off from the auto department and it developed into a pillar in Panasonic’s profitability.

But the auto business was plagued by a succession of losses. This came about because Panasonic invested massive amounts of money in the development of new technologies for EVs and self-operating cars while the proceeds from car parts remained sluggish.

The ratio of operating profits to sales fell below 1 percent at times. This was drastically below the figures for digital solutions and home appliances.

The decision to sell off the auto enterprise stemmed from a realization, an official said, that the company “could no longer continue pouring management resources into the section on our own alone.”

NOT A PRIORITY

Integrating its auto component subsidiary with three parts suppliers from the Honda Group, Hitachi Ltd. established Hitachi Astemo Ltd. in 2021. Hitachi held 66.6 percent of the new firm’s shares as its parent company.

In October last year, Hitachi sold a portion of the corporation’s stock to lower its stake to 40.0 percent. This meant Hitachi Astemo was removed from Hitachi’s subsidiary list.

“The area (of auto parts) is not among our high-priority investment fields for research and development at present,” said a Hitachi representative. “Having a majority stake could cause us to make wrong investment judgments.”

In recent years, Hitachi has been shifting its emphasis in management from traditional manufacturing to digitization.

Hitachi is now sorting out its business units with the sole aim of focusing on cash-cow areas. For example, it has unveiled plans to spend 300 billion yen in the area of generative artificial intelligence in fiscal 2024.