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Japan is demonstrating once again why it’s fast emerging as a national trend setter in the burgeoning global drone industry.

Last November, it was Japan’s regulatory reforms regarding “last mile” remote package deliveries that caught the world’s attention.

While the Federal Aviation Administration continues to drag its feet approving Beyond Visual Line of Sight (BVLOS) drone delivery flights over populated areas, Japan’s civil aviation authority has moved to expedite them – with a vengeance.

Japan’s new “Tier 4” authority gives qualified drone companies the go-ahead to make autonomous BVLOS deliveries without remote piloting, pre-flight inspections or oversight by regulators.

It’s a huge breakthrough.

Now, Tokyo regulators are moving to expedite testing of autonomous passenger drones – or “flying taxis” – giving Japan a major leg up in the competition to create a fully automated air traffic control system integrating conventional and unmanned aircraft.

At the heart of Japan’s new passenger drone initiative is the pioneering Chinese UAV company, EHang.

Last November, EHang’s’ EVTOL EH216 drone taxi made its first point-to-point test flight near the Japanese city of Oita.

But last week the company took a far bolder step:  With the support of the Japanese Ministry of Land, Infrastructure, Travel and Tourism, the company conducted an unmanned flight along the coastline of Oita’s Tanoura Beach – this time, with two human passengers aboard.

It was the first passenger-carrying autonomous drone flight in Japanese history — and one of the first conducted anywhere in the world.

“I am very pleased to witness this moment,” said Oita Mayor Sato Kiichiro. “I hope that today’s passenger-carrying flight test will accelerate autonomous aerial vehicles to take a further step toward practical use cases, so that this industry full of opportunities could be in full swing.”

In a separate release, EHang COO Xin Fang said he looked forward to building on the company’s latest success:

“We will continue working with our partners to promote safe, autonomous, and eco-friendly UAM solutions in Japan so as to benefit more people worldwide with our passenger-grade AAVs,” Fang said.

EHang has previously conducted trial flights of passenger-grade drones in 10 countries across Asia, Europe, and North America.   But none of those flights carried human passengers.

EHang’s success with drone taxis is catching the attention of investors and end-users alike.  Currently, only four drone taxi start-ups are publicly traded:  EHang, two US-based companies, Joby and Archer Aviation, and Lilium, which is German-owned.  But EHang is widely viewed as holding a slight edge over its three competitors..

Last December, EHang’s new EH216 passenger drone prototype was the subject of a feature article in Seeking Alpha magazine which extolled its advantages over its three leading competitors, two US-based companies, Joby and Archer Aviation, and a German-owned firm, Lilium

The article noted that the EH21g6 is about to receive its Type 1 certification, two years ahead of schedule.  In addition, the first 100 EH216 drone taxis have been o=pre-purchased ahead of production, a clear sign of business confidence in the company and its latest offering.

Investors are also mightily impressed. EHang just received a $10 million equity investment from the city of Qingdao, which has declared itself a new “demonstration area” for EHang’s autonomous aerial vehicles, including the new EH216 model.

EHang plans to establish a new Northeast Asia regional headquarters in the city and will launch a new business venture focused on the use of its eVTOL aircraft for firefighting missions.

EHang’s share of the “last mile” market is also growing.  A second EHang prototype, the Falcon, recently concluded test flights in Estonia under a two-year agreement to support long-distance remote package deliveries.  EHang already has agreements with several European cities including Seville, Spain, to bring passenger drones and long-distance package deliveries to the entire EU by 2025.

Industry observers say EHang’s Japanese precedent is indicative of the growing competition between China and Japan for dominance in the Asian drone market.  With the EH216, Tokyo managed to strike first, wooing EHang to set its drone taxi precedent in Japan, not China.

Jaan’s drone industry is still considerably smaller than Beijing’s but some observers believe its current growth rate may be higher.  In addition,   Japan’s own drone start-ups, including Aerodyne, are beginning to expand their worldwide sales, potentially nudging out Chinese competition in the Middle East, for example.

But China still leads Japan and every other country in the world in new drone technology development.  And that enormous gap – illustrated by the EH216 continuing market dominance –  is not likely to shrink anytime soon, observers say.

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