Toyota's Strategic Shift in China

By Maki Shiraki

TOKYO (Reuters) – Toyota aims to produce at least 2.5 million vehicles yearly in China by 2030, as part of a comprehensive overhaul that will align its Chinese sales and production closer together. This plan is driven by the need for local executives to have more autonomy in development.

This unreported strategy signifies a major shift for the world's top-selling automaker in the largest car market, highlighting its determination to regain ground lost to BYD and other domestic competitors.

In contrast to other global automakers, Toyota seeks to increase production further to as much as 3 million vehicles annually by decade's end, although no formal target has been set. This would mark a 63% increase from the 1.84 million vehicles it produced in 2022.

Toyota has communicated its goals to several suppliers, hoping to reinforce its commitment to China and ensure its supply chain remains robust.

In a response to inquiries, Toyota stated, "With the intense competition in the Chinese market, we are constantly considering various initiatives" and it will continue focusing on creating "ever-better cars" for the region.

The company plans to enhance the efficiency of its two Chinese joint ventures by unifying sales and production operations. It also intends to delegate more development responsibilities to local staff familiar with market preferences, especially concerning electrified and connected vehicle technologies.

'TOO LATE'

These adjustments indicate Toyota's recognition of the necessity to depend more on local personnel for product development in China, or risk falling behind the competition.

Legacy automakers, including Toyota, are facing challenges as domestic electric vehicle manufacturers swiftly introduce affordable battery-powered cars equipped with advanced features. Vehicle models developed independently by joint venture partners have been outperforming those jointly produced with Toyota.

For instance, FAW Group's Hongqi brand and GAC Group's Aion EV have surpassed sales of their counterparts at FAW Toyota Motor and GAC Toyota Motor, prompting Toyota to leverage the expertise of its local partners in car designs more effectively.

Currently, the same vehicle is produced at both joint ventures and sold under different names; this approach of "twinned vehicles" is expected to change, with production consolidated under one of the joint ventures, enabling models to be sold at both dealerships.

The challenges faced by Japanese automakers also affect Japanese parts suppliers operating in China. Toyota announced a decline in operating income in China for the first half of the financial year, attributed primarily to rising marketing costs caused by fierce pricing competition with Chinese brands.

In light of this intense competition, several Japanese automakers have altered their strategies, with Mitsubishi Motors withdrawing from the market and Honda and Nissan reducing local production capacity.