The automotive industry is changing, with environmental issues, social trends and economic conditions stimulating the development of new business models and technologies that herald a very different future.

The result of these influences is that alternative propulsion methods are becoming commercially viable, consumer behavior is changing, and transportation is entering a new era. And with these changes, new business opportunities are emerging along the entire automotive industry value chain. Mitsui is determined to become a key player in this new landscape, helping to drive innovation and shape the transportation infrastructure of tomorrow.

FOCUSING ON THE MOTOR VEHICLE BUSINESS

Motor vehicle business has been part of Mitsui's operations since the 1950s, when Mitsui began importing European and North American vehicles into Japan. Over the next 50 years the company's automotive activities expanded mainly in dealership, distributorship, logistics and retail financing in Japan and abroad. By 2007, this business area had grown to account for around 12% of Mitsui's non-resource business.

In 2006, Mitsui undertook a series of reviews to identify future new business pillars, and one outcome was the formation in July 2007 of an Automotive Strategy Department.

The department brought together a young, multi-disciplinary team of 14 from throughout Mitsui's business units, incorporating people with experience in M&A, logistics, motor vehicle engineering and planning.

The department's mission includes looking 15 years ahead to promote the development of Mitsui as a key player in the motor vehicle industry, as part of which the team is responsible for turning ideas into value-creating enterprises in which Mitsui can play a leading role. As we will see below, the office has already reached an important milestone in this respect.

GOING GREEN

Of all the factors influencing the automotive industry in recent times, the most enduring and significant of these is the search for environmentally friendly vehicles. Emission standards, fuel efficiency standards and other environmental benchmarks have been steadily rising in developed markets around the world, and these regulatory trends are aligned with a new consumer consciousness and perception of cars. As a result of these changing social values, 'status' is being accorded to a wider range of cars than before-such that Hollywood stars generate more respect driving a small, fuel-efficient hybrid car than they would in a traditional limousine.

So in the search for environmentally friendly cars, where do the business opportunities lie? Mitsui has identified four key areas: batteries, weight reduction, safety, and communications.

BETTER BATTERIES

Forecasts suggest that by 2025 half of all passenger cars in Japan will use batteries either as a primary or secondary source of propulsion. Currently, the dominant technology in this area is the gas/electric hybrid that combines a gasoline engine with a regenerative electric motor, but other options such as plug-in hybrids and electric-only vehicles are beginning to emerge on a commercial basis.

This shift to electricity brings with it significant issues in terms the lifecycle management of the lithium-ion batteries that are used. For example, the charging capacity of rechargeable batteries used in cars decreases to about 80% over five years, even though the battery itself has a lifespan of around 15 years-longer than the car itself. This means that once battery performance has declined to the point where it is no longer practical for use in a car, it can still be usefully employed as a storage battery for wind-generated or other cyclical power. Mitsui is looking at business models that cover this entire product lifecycle, from primary use in motor vehicles, though to secondary markets for battery re-use and ultimately including recycling.

In this brave new world of battery power, concepts are emerging that turn conventional thinking on its head. It is already feasible, for example, to consider systems in which the battery of your car could provide the power for your home during the day, having been charged overnight with economic off-peak electricity.

Technical development is continuing apace as manufacturers seek to reduce the weight and cost of the powerful batteries used in electric vehicles. Currently, a battery for an all-electric car weighs between 150kg and 200kg and can cost up to $20,000 per unit. These are formidable barriers to widespread adoption, but with technological refinement and the achievement of commercial scale, batteries are becoming smaller, lighter and cheaper.

In support of this, Mitsui is investing in the manufacturers that are developing improved electric propulsion technology and systems. The range of opportunities is wide, because the new environment supports radical new approaches that may not fit the business scope of existing industry participants. This is partly because the adoption of batteries means that some of the more complicated aspects of cars' exhaust, transmission and other systems can be eliminated or greatly simplified, making it possible for new industry participants to develop cars from a new perspective. This is already happening in different markets around the world, and Mitsui is working to identify and invest in promising ventures.

Mitsui is also using its expertise to support the increasing adoption of lighter alternatives to steel, such as aluminum, composites and carbon fiber. The environmental benefits of reducing vehicle weight are compelling, with a 100kg reduction in chassis weight typically producing a 3% improvement in fuel economy in gasoline powered cars. Mitsui's activities in support of the trend towards lightweight materials include alliances with domestic and foreign manufacturers, a joint venture investment in Kentucky-based Kobe Aluminum Automotive Products LLC, investment in Asahi Tec Corporation, and various investments and business alliances with material suppliers and manufacturers in BRIC countries.

Mitsui is pursuing opportunities in another area of the auto industry that is signposting a very different future: automotive safety. Cars are already packed with passive safety features such as seatbelts and airbags, but the new frontier for safety development is active safety, in which electronic and mechanical systems are used to identify hazardous situations and prevent accidents from happening. Mitsui is currently exploring opportunities in alcohol sensors (for driver safety) and hydrogen sensors (for hydrogen powered cars), while the future may bring even more remarkable advances in the field of neuron technology-where a driver's thoughts could be used to recognize and avoid danger. Although commercialization of some of these ideas may still be some way off, Mitsui sees safety systems as an important element of its comprehensive approach to growing its business in the auto industry.

At the same time as becoming greener and safer, vehicles are also becoming more connected. Mitsui is therefore developing a communications service platform that encompasses everything from navigation systems through to performance monitoring.

The car navigation market in Japan alone is forecast to expand 60% in the four years to 2012, with associated growth in services and content. This creates further opportunities for innovative business models, as cars have the potential to become mobile traffic monitors, sending and receiving information on location and speed that can be combined with information from multiple other vehicles to minimize traffic disruption and optimize vehicle efficiency. Similarly, battery status and performance history can be retrieved to support the development of a secondary market for used batteries.

It is impossible to predict how far the adoption of advanced communications will take the motor vehicle, but it has already made possible the development of a new business model-car sharing-that is now gaining traction in the market.

Mitsui's Careco car sharing location in Daikanyama, Tokyo

In Japan and some other markets around the world, a growing segment of the population no longer sees car ownership as a priority. Instead, these consumers place more value on environmental friendliness, value for money and fit with lifestyle. This represents a marked change from the environment that prevailed when most current automakers were established.

Mitsui's Careco car sharing club began operations in January 2009 in central Tokyo, as the first fully-fledged new business to emerge from an Automotive Strategy Department initiative. Car sharing is a member system under which drivers pay a monthly fee for the right to use any car from the club fleet. Booking and even unlocking the vehicle is accomplished in seconds via a mobile phone, and usage fees are inclusive of fuel and other costs. The driving experience is similar to owning a car, but it offers consumers appealing benefits in terms of convenience, environmental friendliness and cost.

For Mitsui, the business is an opportunity to bring together multiple capabilities, including communications, logistics and real estate. Careco had a fleet of 45 cars, mainly hybrids, as of early July 2009, and will soon be introducing electric cars. The vision is to have a depot within a few minutes' walk of every customer, in the manner of a convenience store, operating perhaps 1,000 cars in the next four years.

So we can see that the auto industry is undergoing profound change. And while many of the new technologies and systems discussed here are still in their infancy, it is already clear that the cars of tomorrow will have lower environmental impact, run on a variety of fuel sources, and be more closely networked as part of a managed transportation infrastructure. It's an exciting future to look forward to, and with the Automotive Strategy Department  as the focal point, Mitsui is in pole position.

The posted information is as of the date of issuance. The information may change without notification.