Toyota to target tripling China production over next decade

Toyota to target tripling China production over next decade
An employee stands by Prius automobile body frames inside the Toyota Motor Corp. Tsutsumi plant in Toyota City, Aichi, Japan. The Japanese company sees an opportunity to boost its sales in China with hybrid vehicles. (Noriko Hayashi/Bloomberg)

Toyota Motor Corp. is aiming to triple car production in China as soon as 2030 in a renewed push to make up lost ground in the world’s biggest market, sources said.

Asia’s largest automaker is targeting to manufacture 3.5 million vehicles annually in China around that year while boosting imports to the country to 500,000 vehicles, the sources said of the private internal goals. Toyota can currently produce 1.16 million cars in China annually, and sold 1.3 million there last year for a 4.5 percent market share. Volkswagen AG and General Motors Co. delivered more than 4 million each to China.

The foray comes as Chinese officials warm to the hybrid technology that Toyota pioneered with the Prius, amid a realization that electric vehicles alone probably won’t be able to achieve Beijing’s ambitious environmental targets. The government is aiming for a fifth of car sales by 2025 to be new-energy vehicles (NEV), which include pure EVs and plug-in hybrids. Stringent quotas for NEV production go into force next year.

Toyota is working to correct its course in a market where VW, GM and local manufacturers, such as Geely Automobile Holdings Ltd., are strengthening their presence with lineups heavily featuring plug-in vehicles. Geely, controlled by billionaire Li Shufu, overtook all its Japanese rivals to became China’s third-biggest automaker by sales this year. By contrast, Toyota had to delay the introduction of a plug-in hybrid Corolla until next year, with an EV version of its compact crossover C-HR not due until 2020.

Bloomberg on Toyota’s China expansion plans from Alabama NewsCenter on Vimeo.

The China push is one way Toyota is adapting to fast changes in the market – a focus on self-driving vehicles is another. On Tuesday, Toyota said it is investing $500 million more in Uber Technologies Inc. and that it plans to manufacture minivans loaded with the U.S. company’s software; testing is slated on Uber’s ride-sharing network in 2021.

Some of the China-made vehicles may be bound for other markets in Asia. Nanfang Daily, the Guangdong provincial government’s official newspaper, cited Toyota’s top China executive as saying the country would become a hub for the company’s NEV exports to the rest of Asia. Toyota declined to confirm the comments.

The Toyota City-based company aims to boost Chinese capacity to 2 million vehicles annually by the early 2020s on its way to the 3.5 million-vehicle-a-year production target, sources said.

Shares of the automaker have fallen 2 percent this year, compared with about a 6.5 percent decline for an index of Japanese car manufacturers, including Toyota.

Factory expansion

The company plans to expand capacity in Tianjin by 120,000 units annually with local partner China FAW Group Co., according to a document posted on a local government website. The investment will total $259 million, with 110,000 of the vehicles being plug-in hybrids and the remainder EVs, according to the document.

Additionally, Toyota will build a new factory in Guangzhou with its other local partner, Guangzhou Automobile Group Co., capable of producing 200,000 vehicles a year, Nikkei reported. The joint venture is also expanding existing facilities to make an additional 120,000 cars, bringing annual capacity to 1.7 million units by 2021.

Toyota is studying how to reinforce its organization to accelerate its Chinese business, but declined comment on specific moves.

Employees work on automobile assembly on the Prius hybrid plug-in vehicle (PHV) production line inside the Toyota Motor Corp. Tsutsumi plant in Toyota City, Aichi, Japan. (Noriko Hayashi/Bloomberg)

Slowing pace

The plans don’t come without challenges. After years of rapid growth, the Chinese market is showing signs of cooling. Auto sales expanded just 3 percent in 2017, the lowest rate in recent years, with a similar pace forecast for the current year, according to the state-backed China Association of Automobile Manufacturers.

Even so, China has been improving access to its market, slashing car import duties to 15 percent from 25 percent last month, and starting to ease rules limiting foreign ownership of joint ventures. That compares with Toyota’s biggest market, the U.S., where President Donald Trump’s administration is said to be considering tariffs of up to 25 percent, even as that market shrinks.

Toyota is building a new factory in Alabama with Mazda after Trump took to Twitter last year to criticize the company’s plan to make Corollas in Mexico. Toyota sold more than 2.4 million vehicles in the U.S. last year, almost twice as many as in China.

“A shift away from dependence on the American market would make Toyota more resistant to pressure from the U.S. government,” said Seiji Sugiura, an analyst at Tokai Tokyo Research Center. “If Toyota goes this aggressively into China, it will start to see beyond the 10 million-unit ceiling that has so far seemed unbreakable.”

(With assistance from Masatsugu Horie, Ma Jie and Tian Ying. Contact the reporters at [email protected], [email protected] and [email protected])

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