Japanese automakers including Toyota Motors (NYSE:TM), Honda Motors (NYSE:HMC) and Nissan are preparing to shut their Chinese plants in October as a wave of anti-Japanese sentiments hits the country. Toyota’s sales have already fallen 30% since the protests first hit the cities. Toyota will also produce 20% fewer Lexus cars in order to adjust to the shrinking demand for its vehicles. Automakers had earlier halted production following anti-Japanese protests held in a number of Chinese cities after Japan nationalized the disputed islands on September 11 but had resumed operations once the situation stabilized temporarily.
This comes as a blow to the Japanese automakers who were already struggling to hold on to their market share due to increased investments by their American and German counterparts. The combined market share of Japanese automakers in the country was 26.6% in 2009 compared to 22.8% currently. 
If the anti-Japanese sentiments were to persist longer, Japanese automakers could see their sales growth dwindle in these markets in the mid to long term. This is definitely a setback for Toyota which had aimed to sell 1 million vehicles in 2012 and double the vehicle sales in China to 1.8 million by 2015. ((Toyota aims to double China car sales to 1.8 million by 2015, September 5, 2012, reuters.com)) So far, the automaker has sold close to 600,000 vehicles through August.
The repercussions on Nissan could be even worse since a higher percentage of its vehicle sales are generated in China relative to Toyota or Honda. In fact, Nissan generates 25% of its total profits from China as compared to 15% for Toyota or Honda. On the other hand, the Japanese auto market is dominated by local players so there isn’t really much scope of Japanese automakers gaining market share at the expense of Chinese automakers.
Hope for Japanese Automakers
However, there is some respite for the automakers. All of the Japanese companies are run as joint ventures along with Chinese companies. For example, Toyota and Honda both have a joint venture with Guangzhou Automobile Co. So any loss for the Japanese automakers, therefore, means losses for the Chinese companies as well. Moreover, their plants employ thousands of Chinese people and a halt in production could jeopardize the job security of the employees.  Thus, the under performing Japanese plants could become a political issue with the ruling Communist party being urged to resolve the matter as soon as possible.
We currently have a $90 price estimate for Toyota’s stock, which is about 10% higher than the current market price.Notes:
- Toyota to reduce China-bound production, September 27, 2012, ibnlive.in.com [↩]
- Japanese Car Plants in China: Who’s Feeling the Heat?, September 27, 2012, wsj.com [↩]