Nitto Kohki holds advantage having foot in both EV and hydrogen vehicle markets

Because of the supply chain disruption caused by COVID-19 and US-China decoupling, multinational firms are looking to improve the reliability of supply by diversifying their suppliers. This holds great potential for Japanese firms, which are known for their reliability and advanced technology. Due to the weakened JPY, observers argue that this is a unique opportunity. Do you agree with this sentiment and what do you think to be the main advantages of Japanese firms in the current macroeconomic climate?

I basically agree. Internationally, Japanese manufacturing has been highly evaluated for its stability within supply chains. As you mentioned, Japanese manufacturers are becoming a viable option for companies that are looking to strengthen and secure their supply chains. Speaking of our company, we have three plants in Japan and one plant in Thailand. Having these plants gives us access to stable production facilities, putting us in an advantageous position enabling reliable supply and provision.

The advent of COVID-19, Russia's invasion of Ukraine, and the decoupling of the US and China have caused significant confusion in global supply chains. One of the challenges in securing raw materials is the procurement process itself. While companies may achieve stable production in their plants, the reliance on raw materials from China and Russia now entails significant geopolitical risks. Prior to COVID-19 and the war, these nations were not considered risks, but their current circumstances necessitated companies to diversify their sources and establish sustainable supply chains for raw materials.

Our company was no exception and we moved to diversify supply chains in not only the domestic market, but also other Asian nations.

Sustainability is becoming prominent in modern businesses, and nowhere more so than with the SDGs. Established by the United Nations in 2015, the SDGs have been adopted by many firms worldwide, and Nitto Kohki is no exception. How do the SDGs that Nitto Kohki set dictate the business decisions that you make? What are some of the other initiatives you are employing in order to contribute to a more sustainable society?

The SDGs are actually an important component of our business operations. Nitto Kohki’s mission is to contribute to society through our product development. Our mid-term management plan taking us through to the end of March 2024 highlights the importance of the SDGs and incorporates social contributions to be achieved through business activities based on the SDGs. Particularly important to us is SDG 12—responsible consumption and production—which aims to ensure sustainable consumption and production patterns worldwide. It seeks to promote the efficient use of resources, reduce waste generation, minimize the environmental impact of economic activities, and encourage sustainable practices throughout the entire life cycle of products and services. SDG 12 also touches on the need for countries to implement sound policies and regulations supporting sustainable consumption and production patterns. Humans residing on Earth are constantly causing damage to the planet, damage that is also felt by customers and other stakeholders of Nitto Kohki. To win their trust, we must be friendly to the environment and mindful of the whole planet in our business activities. One target in particular to achieve this is to reduce greenhouse gas emissions, and we are trying to achieve this target through the provisions of our products.

This May in our executive meeting we agreed on establishing the Sustainability Committee, which will further expedite our process of environmental contribution, namely, reducing our dependence on raw materials that are hazardous or there is a scarcity. We are developing alternative and new technologies so that we can work in a sustainable way. Nitto Kohki has around 1,000 employees and it is important that each person understands our SDGs approach. Every year we have a business competition called Mirai No Mi, which translates to “The Fruit of the Future,” and we include SDGs business as a regular theme to promote employee awareness about the relevance of the SDGs to their day-to-day duties. Through such initiatives, we look to come up with new ways to further contribute to SDGs attainment.

I think this focus on sustainability is perfectly reflected in the new plant you announced in December 2022. Why do you believe now is the right time to construct a new plant and what are your expectations once it is up and running?

We currently have our plants in Yamagata and Shirakawa, but around 50 years have elapsed since their establishment and the buildings have aged. Not only that, we hope that by establishing a new plant incorporating the latest cutting-edge technology, along with automation, AI, and other labor-saving technologies, we can raise the standard of the products we make to the next level.

The new plant is to be built in the city of Fukushima, midway between the Yamagata and Shirakawa plants and about a one-hour-and-10-minute drive from either location. Fukushima was unfortunately severely affected by the 2011 Great East Japan Earthquake and by building a plant there, we hope to contribute to the area’s reconstruction through job creation and local material procurement.

There are five objectives behind the construction of the new plant. The first is to improve efficiency and thereby heighten our competitiveness by integrating production lines in one plant. Second is to introduce cutting-edge automation and AI technology. The hope is to reduce the number of people required for the production of our products. In Japan, the population is aging and it is therefore necessary to save on labor and manpower through automation in production. The third objective, given its importance to us as a manufacturer, is to realize provision of a stable supply by increasing production capacity through construction of a large plant in Fukushima. Fourth is to improve material handling work efficiency through introduction of the latest warehousing facilities. The final objective is to create a multi-purpose plant capable of producing all products of the Nitto Kohki Group. This is to be able to analyze global demand trends and produce products the market wants at the new plant.

Another aim is to create a congenial workplace for employees by automating hazardous processes and establishing an oil mist-free and barrier-free environment. Design of the plant has been consigned to Kengo Kuma, the renowned Japanese architect known for designing the Tokyo Olympic Stadium. His designs generally have excellent environmental credentials. The plan is to make the area around the plant a wonderful environment that people in the community can enjoy whether they work for Nitto Kohki or not.

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Nitto Kohki is known for being a dominant player in Japan when it comes to supplying special couplings for vehicles, and hydrogen stations, and currently, your company holds a significant market share here in Japan. In a previous interview, you explained that you are one of only two global companies that have been able to develop hydrogen fueling couplings. Additionally, you have stated your intentions to expand this business into international markets. Can you tell us more about your growth strategy for the hydrogen fueling coupling business and what solutions can you provide to foreign markets?

In Japan, we developed our couplings for hydrogen vehicles together with Toyota. We have also managed to capture market share with couplings for refueling stations by teaming up with a leading Japanese dispenser manufacturer. We will be expanding our product lineup and bolstering sales activities to carve out new applications besides fuel cell vehicles, such as transportation equipment and ships. Outside Japan, our basic strategy is to increase brand recognition and to collaborate with influential partners in target markets. As well as actively participating in hydrogen-related trade shows overseas, we are exploring partnerships with companies of good standing.

Nitto Kohki’s hydrogen-related products satisfy Japanese safety standards, which are the most stringent in the world. Fuel cells are expected to find more uses outside the passenger vehicle sector, for example in forklifts, ships, drones, and freight cars, and ensuring safety performance will be crucial. We aim to strike a balance between quality, as tried and tested in the Japanese market, and economy, thereby meeting the needs of customers. We actually have many contacts that are ready for our products, especially in ships and large vessels. Once the technology is fully established, we believe there will be a huge expansion in the use of hydrogen, and therefore hydrogen-related products and services.

We found from our research that Nitto Kohki has further plans to launch factory automation products, such as machine tools for equipping robots and electric screwdrivers. When it comes to labor-saving devices, are there any products that are new and you would like to showcase for us?

A product currently under the market spotlight is a new pump that dramatically reduces the amount of electricity required for suction conveyor systems by limiting discharge pressure and flow. It simultaneously realizes energy savings, easy installation, quiet operation, and cleanliness. Use of an internal vacuum pump and no compressor makes it possible to reduce power usage. A prototype has already been manufactured and is undergoing safety tests. Our aim is to launch the product early next year and customers are waiting with high anticipation. Only so much information can be disclosed about products currently under development, but products contributing to automation and labor saving remain priority development targets.

There is an insufficient supply of materials to produce lithium-ion batteries and it is causing a bottleneck for the rollout of mainstream electric vehicles. As such, major players such as Tesla are scrambling to secure as many units as possible, and this is showcased by their ‘You Make It, We Buy It’ partnership they have with Panasonic. Nitto Kohki’s couplers are used by battery manufacturers to transport electrolyte liquids in lithium-ion battery plants. As the demand for lithium-ion batteries continues to increase exponentially, how do you plan to take advantage of this growth?

Hydrogen is still expensive and lithium, which is the main component of batteries for EVs, is mainstream. I actually personally worked for a battery manufacturer before joining Nitto Kohki, so I am aware of the situation you talked about. The material used for lithium-ion batteries is a liquid electrolyte solution that requires couplings for its transportation. This increased need for batteries is leading to an increase in our own business as our products are a crucial part of the battery-making process. Additionally, with the advancements made in hydrogen, we are seeing an increase in our business opportunities in that sector too. We have great potential in both directions.

Recently, I had a meeting with the president of Panasonic and he said that working with Tesla has given their company a lot of advantages. There is an increasing number of battery manufacturing companies globally, especially in China where they are producing a massive number of batteries. You have to remember that these lithium-ion batteries have applications beyond just EVs. Being reliant on nuclear, coal, and LNG is not sustainable in the long term, so it is important to increase the number of options we have in terms of alternative energy sources. However, the downside of these renewable energy sources is that the power generation fluctuates by the climate, so in this case, batteries can be indispensable for maintaining stable supplies of power. We see many avenues for increasing our sales activities for this battery production. In this way, you could say Nitto Kohki has an advantage having a foot in both EV and hydrogen vehicle markets. Expansion in either market would be seen as a growth factor for Nitto Kohki.

COVID-19 has had an obvious effect on many businesses globally, but your financial results for 2022 showed that you have made a V-shaped recovery, culminating in a sales number of roughly JPY 28 billion with record-high international sales numbers. What was the reason behind this V-shaped recovery and impressive international sales performance?

We are fortunate now that we are living in a post-COVID world and Nitto Kohki is now able to collect the fruits of our labor from the last three years. During the pandemic, sales deteriorated and we were unable to visit customers. But even then, sales teams continued to take good care of customers and persevered with sales activities.  We communicated with our customers both in Japan and overseas using online meetings. If necessary, we took action to go visit those customers directly.

Another thing we did during the pandemic was to turn one of our conference rooms into a filming room and create over 200 videos introducing our products. The videos have been well received by customers and it has given further information to potential future customers. Now that things have returned to normal, we are able to return our sales activities to some sense of normality too.

On the topic of overseas sales, we posted a record high last year. This was the result of persistent sales activities pursued through creative events, such as online exhibits. An increase in EV production, particularly in China, also led to sales expansion for couplings used on EV battery production lines, contributing to the record sales level.

Interview conducted by Karune Walker & Sasha Lauture