Cooling EVs, Surging AI: A Massive Capital Rotation Reshaping the Global Industrial Landscape

TSMC’s Review of AI Line Conversion and Japan’s All-Out Semiconductor Push
AI Data Centers Rapidly Filling the Void Left by Nissan and Toyota’s Battery Investment Retreat
The ‘EV Exodus’ and a Monumental Capital Shift Toward AI, as Companies Seek New Pathways Through ESS and Hybrids

The center of gravity in the global industrial landscape is rapidly shifting from electric vehicles (EVs) to artificial intelligence (AI). Japan is accelerating infrastructure development by converting semiconductor production lines from automotive use to AI applications, while Europe is actively courting global Big Tech investment through regulatory easing. As policy shifts and demand deceleration force the EV market into a period of consolidation, massive volumes of capital are converging on AI. This confluence of uncertainty in the EV sector and explosive growth in AI is heralding a far-reaching reconfiguration of global supply chains, compelling both corporations and governments to devise new survival strategies.

TSMC’s Second Fab Likely to Pivot to AI, Triggering an All-Out Push on Power and Talent

On the 25th, Nikkei reported that “a series of plan revisions is unfolding across Kyushu’s automotive and semiconductor industries in 2025,” adding that “TSMC is reviewing a plan to convert the production focus of its second Kumamoto plant from automotive chips to cutting-edge AI semiconductors.” Initially designed to prioritize 6-nanometer automotive chips, the second fab is now widely expected to introduce sub-4-nanometer advanced process nodes alongside advanced packaging lines such as CoWoS. Despite breaking ground last October, construction progress has slowed since late last month, a delay widely attributed to the ongoing review of these design changes.

As the world’s largest foundry operator has signaled combined monthly capacity of 100,000 wafers (12-inch equivalent) across its first and second Kumamoto fabs, the Japanese government is mobilizing more than $8.5 billion to solidify a public-private “AI semiconductor fortress” strategy. This semiconductor hub is fueling explosive growth in data infrastructure, with Japan’s data center market—valued at approximately $190 billion in 2023—projected to expand at an annual rate exceeding 10% to reach around $270 billion by 2026.

The resulting power supply crunch has emerged as a national-level challenge. Japan’s Organization for Cross-regional Coordination of Transmission Operators (OCCTO) forecasts that combined electricity demand from semiconductors and data centers will surge from 3.6 billion kWh in 2025 to 51.4 billion kWh by 2034, a nearly fourteenfold increase. In response, the government has elevated grid expansion to a core industrial policy priority, committing roughly $3.6 billion to expand offshore wind power facilities in Kitakyushu. Regional companies are also entering large-scale energy storage system (ESS) projects, intensifying efforts to stabilize power supply.

Nissan Scraps, Toyota Delays: Data Centers Move In Where EV Investments Retreat

In stark contrast to the semiconductor sector’s aggressive expansion, EV battery investment in Kyushu has come to an abrupt halt. Nissan Motor has fully scrapped its plan to invest approximately $1.1 billion in a lithium iron phosphate (LFP) battery plant in Fukuoka Prefecture, which had been slated to deliver annual capacity of 5 GWh and create 500 jobs.

Toyota Motor, the world’s largest automaker, has also adopted a more cautious stance. After acquiring a 280,000-square-meter site in the Kanda industrial complex of Fukuoka Prefecture earlier this year, Toyota had planned to break ground in 2025 and begin producing next-generation batteries for Lexus models in 2028. According to Asahi Shimbun, however, Toyota has decided to reassess the project timeline from scratch and postpone construction indefinitely. Consequently, the launch of its next-generation EVs—originally targeted for 2026—is now expected to slip to the latter half of 2027.

This delay reflects a combination of slowing EV demand and lingering uncertainty surrounding next-generation battery technologies. While Toyota had intended the facility to serve as a core supply base for its premium Lexus brand, stagnant global demand and aggressive low-cost competition from Chinese manufacturers have clouded profitability prospects. Technical hurdles have compounded the challenge, as delays in developing batteries capable of delivering 1,000 kilometers per charge have pushed back both vehicle integration and plant ramp-up schedules. As a result, Toyota’s global EV sales targets—1.5 million units next year and 3.5 million units by 2030—are now under threat. The episode underscores a broader industry shift, with automakers reallocating capital expenditure away from battery capacity expansion toward vehicle software and hybrid system upgrades.

The void left by retreating EV investment is being rapidly filled by AI data centers and the power infrastructure required to support them. Wood Mackenzie projects that Japan’s data center electricity consumption will reach 57–66 TWh by 2034, with peak demand rising to 6.6–7.7 GW. Where EV charging once dominated national power planning assumptions, hyperscale data centers have now emerged as the single largest variable. This pattern is mirrored globally. The International Energy Agency estimates that worldwide data center electricity consumption will more than double from 460 TWh in 2022 to around 1,000 TWh by 2026. McKinsey projects that cumulative capital expenditure required for global data center construction will reach $6.7 trillion by 2030. While the EV industry revolved around batteries and charging infrastructure, the AI industry is fundamentally an infrastructure game centered on power supply, cooling systems, and site acquisition.

Ford Contract Termination and EU Regulatory Easing Fuel the EV Exodus: Batteries Pivot to ESS, Capital Flows to AI

The shift in industrial focus is materializing as a tangible shock to global supply chains. On the 17th, Ford abruptly terminated a $6.5 billion battery supply contract with LG Energy Solution, following its earlier restructuring of joint ventures with SK On. The cancellation of contracts of this magnitude signals that the EV downturn has progressed beyond a cyclical adjustment into a full-scale restructuring of the value chain.

Underlying this “EV exodus” is a rapid rollback of policy support across major economies. The United States ended EV purchase subsidies of up to $7,500 per vehicle on September 30, triggering a 30% year-on-year drop in October sales. After incurring losses of $1.6 billion, General Motors has begun lobbying to weaken emissions regulations, while AlixPartners has slashed its forecast for the U.S. EV sales share in 2030 to 18%, roughly half of prior estimates. Canada has suspended its planned EV sales mandate, and the European Union has softened its 2035 internal combustion engine phaseout target to a 90% reduction, retreating in the face of large-scale layoffs at Volkswagen Group.

As EV markets stall amid policy retrenchment and deteriorating profitability, global investment flows are rapidly reorganizing around AI and defense-related technologies. Driven by fear of missing out on U.S. Big Tech dominance and mounting geopolitical insecurity, European venture capital investment reached a record $57 billion this year, producing 12 new unicorns and underscoring an acute capital concentration. In tandem, U.S. Big Tech firms such as Google, Microsoft, and Nvidia are committing multibillion-dollar infrastructure investments, spurred in large part by the EU’s decisive shift toward regulatory pragmatism. With Brussels signaling an imminent “regulatory simplification package,” capital inflows into a newly permissive European market are expected to persist.

For battery manufacturers, automakers’ investment pullbacks have translated into a severe order drought. South Korea’s three major battery producers are responding by converting underutilized EV battery lines into ESS production for AI data centers. An industry source cautioned, however, that “while ESS demand is rising alongside AI data center expansion and renewable energy deployment, EV batteries still account for the overwhelming share of the market,” adding that “without a recovery in EV demand, fundamental structural improvement will remain elusive.”

Korean automakers are also navigating the turbulence through powertrain diversification and targeted model launches. Hyundai Motor Group is strengthening its hybrid SUV lineup in the U.S. market while expanding hybrid penetration and introducing entry-level EVs in Europe. Nonetheless, data from the European Automobile Manufacturers’ Association show that Hyundai and Kia’s cumulative European sales from January to November fell 2.6% year on year to 959,317 units, indicating that the broader market downturn remains inescapable.

The deeper challenge lies in Korea’s narrowing position amid the massive capital migration from EVs to AI infrastructure. While Japan is constructing an “AI fortress” encompassing semiconductors, power grids, and data centers across Kyushu, Korea continues to struggle with complex permitting processes and uncertainty over power supply, diminishing its appeal to global Big Tech investors. Kim Chae-yoon, an analyst at NH Investment & Securities, observed that “Japan’s data center industry is evolving beyond market expansion into a force reshaping national industrial policy,” urging that “Korea must urgently benchmark this approach to secure competitiveness in AI infrastructure.”