Carlyle sees big in Japan auto industry as EV shift shakes supply chains

9:25 pm Monday, November 21st, 2022

By Makiko Yamazaki

TOKYO (Reuters) – U.S. private equity firm Carlyle Group Inc aims to enlarge its footprint in the Japanese automotive sector as the global shift to electric vehicles (EVs) shakes the industry’s supply chain, its executives said.

With the world quickly moving to EVs, Japanese auto parts suppliers are reviewing strategies that were traditionally tailored for combustion-engine cars, Reiji Terasaka, who heads Carlyle’s Japan industrial team, told Reuters in an interview.

“They are thinking very innovatively what they can do, and that’s creating a lot of (investment) opportunities for private equity,” Terasaka said, pointing to Carlyle’s global business networks, which its portfolio companies could tap to find potential partners abroad.

The Japanese auto industry used to draw strengths from its decades-old keiretsu system – a hierarchical pyramid of equity-interlocked suppliers with automakers sitting atop and ensuring business security.

But the shift to EVs, which require fewer parts but different expertise, such as software engineering, will likely reshape Japan’s core industry, analysts say.

Automakers might not be able to support all kinds of keiretsu companies anymore, Terasaka said, adding that he anticipated changes to how the keiretsu system operated.

Carlyle this month announced a 38 billion yen ($270.75 million) tender offer for Totoku Electric Co Ltd, an electric-wire maker whose products include wiring for automotive seat heaters.

Brian Bernasek, co-head of Carlyle’s U.S. buyout and growth team, said in the same interview that the firm could help portfolio companies expand overseas by supporting them in global talent search, digitalisation, procurement and regulatory compliance.

The private equity industry “has evolved over the last 10 to 20 years from where there was more of a focus on costs,” Bernasek said.

“Today, there’s much more focus on how you grow the business, bring digital tools, different approaches to go to market, more strategies around pricing and product rationalization,” he added.

($1 = 140.3500 yen)

(Reporting by Makiko Yamazaki; Editing by Bradley Perrett)