Daikin chases ‘rival’ Tesla with new tech, pushed by inexperienced stress

OSAKA — As global warming drives demand for energy efficiency, Daikin Industries eyes a transformative green technology to remain the world’s top air conditioner maker by sales as well as a new refrigerant to let the Japanese company enter the electric vehicle market.

A business report from Daikin’s New York office in October 2020 served as a wake-up call for President Masanori Togawa and other senior executives.

“This poses a major threat to us,” one official said, after reading that U.S. electric vehicle giant Tesla wants to offer home air conditioning systems.

Tesla CEO Elon Musk, who boasts ventures ranging from space travel to brain chips, told shareholders the previous month that he might launch a home heating, ventilation and air conditioning (HVAC) system business.

“That’s a pet project that I’d love to get going on,” Musk said. Indeed, Tesla’s sport utility vehicle released that year featured a heat pump, considered to offer greater energy efficiency than a conventional heating system.

Daikin earns 90% of its group sales of roughly 2.5 trillion yen ($21.9 billion) in air conditioning systems. Current air conditioners are said to have nearly reached the limit in terms of energy efficiency. But just as Tesla has driven the automotive industry’s transition toward EVs after a century of reliance on internal combustion engines, it could revolutionize the air conditioning industry.

SpaceX founder and Tesla CEO Elon Musk visits the construction site of Tesla’s gigafactory in Gruenheide, Germany, on May 17.

  © Reuters

One year after Musk’s surprise remark, Daikin’s researchers in the Osaka Prefecture city of Settsu are working hard on magnetic refrigeration, a next-generation technology that taps the ability of magnetic materials to change temperature. This technology, which uses water for heating and cooling, offers a way to transform how air conditioning works for the first time since it was invented 120 years ago in the U.S.

With magnetic cooling technology, new air conditioners no longer would need to use refrigerants — including greenhouse gases — or the compressor, which accounts for 80% of an air conditioner’s power consumption.

“We’ll be causing disruption,” said a passionate Yuji Yoneda, the senior executive officer overseeing research and development. But commercialization is uncertain, and the company will determine the technology’s feasibility by 2025.

The green revolution is bringing down the walls between industries. As Tesla weighs entry into the HVAC market, Daikin itself aims to encroach upon the U.S. company’s turf. The Japanese manufacturer seeks to commercialize by fiscal 2025 a power-saving refrigerant for automotive air conditioners that extends the range of electric vehicles by up to 50%.

“Changes are always happening at the front line of the battle,” Togawa, who is in his 11th year at the helm of Daikin, likes to say these days. He may be referring to the many markets in Asia where the population continues to surge.

Tengah is a 42,000-home “smart city” that Singapore is building for completion in 2023, featuring a centralized cooling system rather than individual air conditioning units. Residents will pay only for the hours of cool air used in this “subscription” service aimed at enhancing energy efficiency. Daikin won the contract for the project as the supplier, and is eyeing other smart city plans in Southeast Asia.

A rendering of the Tengah smart city in Singapore under construction. Daikin won the order for a centralized air conditioning system. (Photo courtesy of Daikin)

“If we don’t get other contracts, we’d instantly become a loser,” Senior Executive Officer Yoshihiro Mineno said in a pep talk to staff.

Daikin expects to turn a record group net profit in the year through March 2022, its first all-time high in four years. The COVID-19 pandemic buoyed sales in Japan of its Urusara air conditioner, which features ventilation. Investors have sent the company’s market capitalization soaring to about 7.5 trillion yen — rivaling the likes of motor manufacturer Nidec and Fast Retailing, the company behind casualwear brand Uniqlo.

Being on the global business map is a rather recent achievement for Daikin, which endured decades of ups and downs.

Founded in 1924 as an aircraft parts producer in Osaka, the company even made components for projectiles during World War II. After the war, Daikin slashed jobs but benefited from demand during the Korean War. Daikin shifted focus to air conditioning, but later the 1970s oil crisis sent the company into the red, where it remained for two years.

Strong demand for commercial air conditioning fueled a recovery, only to be followed by a return to red ink after Japan’s stock and real estate bubble burst. It was not until Noriyuki Inoue, now chairman, took control as president in 1994 that the company decided to specialize exclusively in air conditioning and expanded rapidly overseas, getting back on a growth track.

Daikin ditched the Japan-centric managing style and embraced a local focus, building development and production bases across the globe along with a worldwide supply chain. It also spent years persistently cultivating sales agencies in different regions. The company generated 77% of its sales outside of Japan for fiscal 2020 — a far cry from just 14% before Inoue took the helm.

Such strong performance overseas “wouldn’t have been possible” at conventional electronics makers, which invest in a broad range of fields, said Yasushi Yamada, adviser and senior executive officer.

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