by GE Cheng

Toyota has emerged as the sole bright spot among Japan's carmakers in China, while Nissan Motor and Honda Motor continue to lose ground, highlighting uneven progress as the market shifts rapidly toward electric and smart vehicles.

Sales disclosures released in mid to late January show sharply divergent outcomes for 2025. Toyota posted a marginal year-on-year increase, ending a two-year decline. Nissan recorded its seventh consecutive annual fall, while Honda slid to a five-year low. Japanese brands' combined share of China's passenger-car market has dropped from about one-quarter at its peak to below 10%.

Toyota delivered more than 1.78 million vehicles in China last year, exceeding the combined sales of Nissan and Honda and making it the only Japanese brand to post growth. The increase—just 0.23%—marked Toyota's first annual uptick since 2022. The rebound, however, remains narrow and relies heavily on hybrids and a small number of high-margin models.

Nissan and Honda continued to struggle. Nissan sold about 653,000 units, down 6.26% year on year and nearly half its 2018 peak. Honda performed worse, with terminal sales of 645,300 units, down 24.28% and marking its fifth straight annual decline. Volumes are now almost one million units below the 2020 high.

Beyond the headline figures, pressure is most evident at the dealership level. Visits by Jiemian News to multiple Japanese-brand outlets found sales staff citing lagging smart-vehicle features and ageing retail networks. In the mass market, Chinese brands routinely offer L2 driver-assistance systems at around 100,000 yuan, while Japanese models often lag on configuration, weakening their appeal as buyers place greater weight on digital experience and software.

Distribution adds to the strain. Japanese brands remain heavily reliant on the traditional 4S dealership model, even as foot traffic shifts toward city centers and mixed-use commercial hubs. Many outlets depend mainly on after-sales customers, with weak new-buyer conversion. Petrol models still dominate volumes, while new-energy vehicles struggle to gain traction.

The divergence among the three brands has been years in the making, with Toyota standing out for resilience. Its China sales rose from 1.12 million units in 2015 to a peak of 1.94 million in 2021, before rebounding above 1.78 million in 2025 despite a broader market slowdown.

Nissan entered decline earlier, slipping after 2019 and suffering sharp drops in 2022 and 2023 that eroded market share. Honda peaked later, reaching 1.63 million units in 2020 on the strength of models such as the CR-V, Accord and Civic, before sliding into a multi-year contraction, including steep falls in both 2024 and 2025.

Strategic choices increasingly explain the gap. Toyota's recent stabilization reflects deeper localization. In 2025, Toyota deepened localization in China, introducing a regional chief engineer system that gives China-based teams greater authority over product development decisions.

Results are beginning to show. GAC Toyota's bZ3X logged more than 70,000 deliveries, leading joint-venture EV sales. Hybrids now account for more than half of Toyota's China volumes, while higher-margin models such as the Sienna and Highlander have remained steady in the 200,000–300,000 yuan segment. MPVs alone contributed more than 160,000 units.

Nissan has also devolved authority, though more cautiously. Its GLOCAL strategy has delivered early gains, including solid take-up for new EV and plug-in hybrid models and strong initial demand for a Huawei-linked Teana cockpit. Risks remain, however, as the ageing Sylphy still accounts for more than half of passenger-car sales and momentum in new-energy models has yet to prove durable.

Honda's challenges are deeper. Both joint ventures underperformed in 2025, with GAC Honda sales down 25.22% and Dongfeng Honda down 23.92%. Multiple EV launches failed to gain traction, with some models selling only a few hundred units a month. Honda has since scaled back its EV ambitions, cutting a planned 10 trillion yen investment by 30% and halting development of a large electric SUV.

Some analysts say the pressure on Japanese carmakers reflects structural change rather than a short-term cycle.

CHEN Jian, a researcher at Renmin University of China, said Chinese consumers' preferences have been reshaped by rapid advances in electric vehicles, smart appliances and digital ecosystems, weakening the appeal of traditional Japanese brands across multiple sectors.

"These changes are driven by industrial upgrading and market competition, not by temporary sentiment," Chen said, adding that the risk for Japanese manufacturers lies in losing relevance in China's consumer market rather than riding out a cyclical downturn.

Japanese brands' retreat mirrors a broader shift in China's auto market. From 2022 to 2025, Chinese marques lifted market share from 45.9% to 69.5%, helped by first-mover advantages in EVs and faster product iteration. Domestic players have paired advanced driver-assistance systems and smart cockpits with aggressive pricing to squeeze slower-moving rivals.

Toyota is accelerating its EV push in China, Nissan is relying on partnerships to catch up on software, while Honda lags on both fronts. Globally, Japan's automakers remain cautious on full electrification, leaning on hybrids—a strategy that buys time but risks missing scale in pure EVs.

Looking ahead, Toyota enters 2026 from a position of relative strength, supported by solid profitability and continued investment in EV platforms, batteries and intelligent driving. Nissan and Honda face tougher conditions amid profit pressure, tariff risks and heavy electrification spending with limited near-term returns.

For Japan's carmakers, China has become a decisive battleground. Whether deeper localisation can halt further erosion is likely to be tested in 2026.