“Over the next decade, Japanese auto manufacturers and associated industries will make sizeable up-front investments in alternative-fuel vehicle technologies while bearing the risk that these vehicles may ultimately not be taken up by the market,” says Motoki Yanase, a Moody’s Vice President and Senior Credit Officer.

“In addition to the direct impact on the auto, steel and refining sectors, electrification – and the resultant drop in gasoline consumption – will also reduce a meaningful source of government tax revenue, which funds road construction and public works programs.”

Moody’s conclusions are included in its just-released report “Cross-sector: Push for alternative-fuel vehicles presents challenges for Japan Inc.” Japan Inc. refers to Japanese auto manufacturers and associated industries.

The agency’s report highlights that tightening emission requirements, changing consumer preferences amid growing concerns over climate change, and technological innovation were all driving the push for alternative-fuel vehicles.

Moody’s estimates that electric vehicles and other alternative-fuel vehicles, including hybrids, plug-in hybrids and fuel-cell vehicles, could account for around 35 per cent of new vehicle sales globally by 2030, compared to less than 5 per cent in 2017.

At the same time, one of the biggest risks was the uncertainty of even attempting to forecast likely trends, it warned, making it very challenging for automakers to adopt a strategy that ensured they remained competitive and profitable.

For automakers, the rising R&D costs and capital investments needed for the shift to alternative-fuel vehicles could squeeze their already-thin margins. In addition, the entry of new carmakers will increase competition, while emerging technologies will take automakers beyond their core skills and toward new business models.