Battery electric vehicles stagnate while hybrids lead Japan's electrification shift
Japan's government actively promotes new energy vehicles as part of its carbon-neutral commitment. These efforts include financial incentives, expanded charging infrastructure, and tax benefits designed to accelerate electrified mobility.
However, consumer preferences continue to favour hybrid electric vehicles over battery electric vehicles. Despite clear government support for battery electric vehicle adoption, market penetration remains slower than expected.
Figure 1: Japan Car Registration Trend by Powertrain Type
Japan is the world's fourth-largest automotive market. A key characteristic is the strong presence of domestic manufacturers, with Japanese brands accounting for 93.9% of total vehicle sales in the first half of 2025.
This high market share is supported by major manufacturers such as Toyota, Honda, Suzuki, and Nissan, all of which play central roles in advancing vehicle electrification.
Figure 2: 2025 H1 Car Registration Share by Make
Internal combustion engines lose ground to hybrids
The share of internal combustion engine vehicles in Japan's passenger car market has steadily shrunk, largely because of rising hybrid electric vehicle popularity. In 2023, internal combustion engine vehicles fell below 50% of total passenger car registrations for the first time. By 2024, their market share dropped to 42.3%. Although there was a slight recovery to 44.7% in the first half of 2025, electrified vehicles continue to account for the majority of new car sales.
Looking at electrified powertrains—which include hybrid electric vehicles, mild hybrid electric vehicles, plug-in hybrid electric vehicles, and battery electric vehicles—the data shows a clear trend. In 2019, hybrid electric vehicles held a 21.7% share, while battery electric vehicles accounted for just 0.5%. Although battery electric vehicle share rose to 2.2% in 2023, it fell back to 1.3% in the first half of 2025, showing that battery electric vehicle adoption remains limited.
In contrast, hybrid electric vehicles have shown steady progress. Their market share rose to 35.6% in 2024 and settled at 33.8% in the first half of 2025, while unit sales increased by 2% year-over-year.
This consistent growth is driven by the technological advantages and competitive pricing strategies of Japanese manufacturers. Hybrid electric vehicle sales accounted for 21% for Toyota, 6% for Honda, and 4.5% for Nissan in the overall market during the first half of 2025.
Battery electric vehicle model launches increase but pricing remains polarised
Figure 4: Car Registration Trend and Number of Models Available by Imports/Domestics
The number of battery electric vehicle models available in Japan's car market has grown significantly, from just 10 models in 2019 to 61 models by 2025. However, only 10 of these are from Japanese brands, while the remaining 51 are foreign brands, highlighting the strong presence of imports in Japan's battery electric vehicle market.
In terms of sales performance, kei battery electric vehicles such as the Nissan Sakura and Mitsubishi eK X EV, launched in 2022, played a key role in driving BEV growth. These models helped boost the share of Japanese-brand battery electric vehicles from 59% in 2021 to 75%.
Although imported BEVs regained market share in the first half of 2025, kei battery electric vehicles continue to appeal to Japanese consumers because of their affordability and compact size, which align well with local preferences. As such, they have become a practical starting point for BEV adoption in recent years.
There is a significant price disparity between domestic and imported battery electric vehicles. In the first half of 2025, the weighted average price of imported battery electric vehicles was approximately ¥7.37 million ($50k), while domestic battery electric vehicles, reflecting the impact of affordable kei vehicles, averaged around ¥3.53 million ($24k). Imported battery electric vehicles tend to emphasise high performance, advanced features, and luxury positioning, often supported by loyal customer bases. In contrast, Japanese BEVs prioritise practicality and affordability, resulting in clear segmentation between the two groups.
The potential of kei battery electric vehicles
Figure 5: 2025 H1 Car Registration Share by Segment (Whole Market)
Kei cars are small vehicles defined by regulations unique to Japan. They accounted for 33.4% of all passenger car sales in the first half of 2025, highlighting their significant role in the domestic automotive market. Particularly in regional areas, their affordability and lower running costs have earned strong consumer support, making them widely adopted as everyday transportation and second vehicles.
An analysis of market trends over the past six years shows that the share of kei cars has remained consistently stable, ranging between 32% and 36%. This steady demand, despite fluctuations in the broader market, confirms that kei cars are a well-established segment suited to Japan's transportation and lifestyle environment. They are likely to remain an important consideration in future electrification strategies.
Figure 6: Trend of Average Range: Comparing Kei and Non-Kei Models
Battery electric vehicle models in the kei segment are expected to be strategically developed in response to the unique needs of the Japanese market. In particular, by focusing on short-distance travel, these vehicles help mitigate concerns around limited range and charging infrastructure. Additionally, by keeping specifications modest, they offer more affordable options, lowering the entry threshold for consumers.
When analysing average driving range, non-kei passenger BEVs have shown steady improvement over time. In contrast, kei BEV models have remained relatively flat, even after the market introduction of the Nissan Sakura and Mitsubishi eK X EV.
The launch of kei BEVs in 2022 contributed to revitalising the overall BEV market, reaching 88,099 units in 2023, a 53% increase year-over-year. However, sales have since entered a downward trend, indicating that future developments in the kei BEV segment will require close attention.
Figure 7: 2025 H1 BEV Average Range and Prices by Segment
The Nissan Sakura and Mitsubishi eK X EV were both launched in 2022, each offering a driving range of around 180 kilometres. When compared to the weighted average range of non-kei battery electric vehicles, this represents a difference of nearly threefold. In terms of pricing, the gap is also significant—there's a difference of about ¥4 million ($27.2k) between kei battery electric vehicles and non-kei cars.
On September 12, 2025, Honda has launched its new kei BEV, the N-ONE e:, which boasts a driving range of over 295 km and a starting price of approximately ¥2.69 million (around $18.29k). This release may spark stronger competition and boost kei BEV adoption.
Hybrid electric vehicles offer market appeal and cost advantages
While the long-term expansion of battery electric vehicles continues to be a strategic goal, hybrid electric vehicles are currently regarded as the most realistic choice for many consumers. They offer clear advantages, particularly in pricing and fuel efficiency.
Figure 8: Number of models available in 2025 H1 by Power Train Type
In the first half of 2025, the weighted average price of new passenger cars in Japan was around ¥3.29 million ($22.4k). Around 80% of models were priced below ¥4.09 million ($27.8k), and about 90% were under ¥5.8 million ($39.4k), based on manufacturer's suggested retail price.
However, when focusing specifically on battery electric vehicles, only six models were priced under ¥4.09 million ($27.8k). Among these, two were kei cars, and three were imported models: Hyundai Kona, Hyundai Inster, and BYD Dolphin.
In contrast, there were 34 hybrid electric vehicle models available within the same price range, with a wide variety offered by Japanese brands such as Toyota, Honda, and Nissan. Although HEVs are generally priced higher than ICEs within the same segment, they are considered to offer superior cost performance when factors such as fuel efficiency, equipment enhancements, and tax incentives are taken into account.
Supported by a broad lineup and long-standing consumer trust in domestic brands, HEVs remain the most accessible and familiar electrified powertrain option for Japanese consumers.
Government subsidy policies and consumer behaviour
Figure 9: Maximum Amount for Government Subsidies and the Sales Trend
To achieve carbon neutrality, the Japanese government provides subsidies for clean energy vehicles, including battery electric vehicles and plug-in hybrid electric vehicles. The Clean Energy Vehicle subsidy programme has expanded over time from a maximum of ¥400k ($2.72k) in 2020 to ¥850k ($5.78k) in 2022, and up to ¥900k ($6.12k) in 2025.
For kei battery electric vehicles, subsidies of up to ¥574k ($3.9k) are available. In areas such as Tokyo, these national subsidies can be combined with local government programmes, significantly reducing the actual purchase cost for consumers.
For example, the entry-version of Nissan Sakura, with a manufacturer's suggested retail price of ¥2.54 million ($17.27k), qualifies for a subsidy of ¥574k ($3.9k), equivalent to around 22% of its price. Additional tax incentives also apply. This level of support helps narrow the price gap between electric and internal combustion engine vehicles, especially in the kei segment, making electric vehicles a more viable option for a broader range of consumers.
However, in terms of overall battery electric vehicle adoption, the direct impact of subsidies remains limited. Fundamental challenges—such as consumer preferences and delays in infrastructure development—continue to hinder widespread uptake.
Tax benefits support electrified vehicle adoption
Example of calculated benefit (Rav4)
* Clean Energy Vehicle Subsidy Amount + Eco-Car Tax Reduction + Environmental Performance Tax Exemption
In addition to subsidies, the Japanese government has introduced a range of tax incentives to encourage the purchase of electrified vehicles (BEV/PHEV). A key government programme is the Eco-Car Tax Reduction, which lowers environmental tax and tonnage taxes depending on the vehicle's environmental performance.
Originally introduced as a temporary measure, this programme has been extended annually and continues to be updated and applied. These tax benefits not only reduce the initial financial burden at the time of purchase but also help lower ongoing costs such as those incurred during vehicle inspections.
As a result, tax incentives play an important role in boosting consumer interest in electrified vehicles, complementing the impact of direct subsidies and contributing to the broader shift toward sustainable mobility.
Conclusion
While Japan's national policy continues to promote the adoption of battery electric vehicles, hybrid electric vehicles remain the most stable and widely accepted choice in the current market. Emerging segments such as kei BEVs are expected to drive future battery electric vehicle expansion.
Looking ahead, the growth of BEVs will depend not only on continued improvements in external factors—such as subsidy programmes and infrastructure development—but also on the diversification of price ranges and product offerings that align with consumers' lifestyles. These elements will be key to unlocking broader adoption and future market growth.
*all data correct at the time of publishing.
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* ¥1= $0.0068 *Model example