EXCLUSIVE-Toyota aims to increase production in China in strategic shift, sources say By Reuters

By Maki Shiraki

TOKYO (Reuters) – toyota aims to make at least 2.5 million vehicles a year in China by 2030, three people said, an overhaul that will bring its sales and production operations closer together in China and allow local executives more freedom in development.

The plan, which has not been previously reported, represents a strategic pivot by the world's best-selling automaker in the world's largest auto market, underscoring its ambition to regain business lost to BYD (SZ:) and others. local actors in recent years.

Toyota's strategy contrasts with that of other global automakers, including the Japanese, which are downsizing or exiting China.

It aims to increase production to 3 million vehicles a year by the end of the decade, two of the people said. However, it has stopped short of setting a formal goal, the three people said. All of the people declined to be identified because the matter has not been made public.

The higher figure represents a 63% increase from the record 1.84 million vehicles it produced in China in 2022. Last year it produced 1.75 million vehicles there.

Toyota has informed some suppliers about the expected increase, hoping to reassure parts makers about its commitment to China and thus secure its supply chain, the people said.

In response to questions from Reuters, Toyota said in a statement: “With intense competition in the Chinese market, we are constantly considering various initiatives.” He said he would continue working to make “better and better cars” for the Chinese market.

The Japanese automaker aims to bring the sales and production operations of its two Chinese joint ventures closer together to improve efficiency, two of the people said.

It also aims to shift as much development responsibility as possible to China-based staff who have a better understanding of local market preferences, particularly around electrified and connected car technology, two of the people said.

'TOO LATE'

The moves indicate a growing awareness within Toyota that it needs to rely more on local staff to take charge and accelerate product development in China, one of the people said, adding that otherwise “it will be too late.”

Traditional automakers, including Toyota, have been overtaken in China as domestic electric vehicle makers rapidly roll out affordable, battery-powered and technologically advanced cars.

Last year, Toyota announced plans to deepen cooperation between its R&D center in Jiangsu province and its two local joint ventures.

One problem, representative of Toyota's broader woes, is that vehicles independently developed by joint venture partners sell better than those produced with Toyota.

For example, FAW Group's Hongqi brand and GAC Group's Aion EV outsell the respective models of FAW Toyota Motor (NYSE:) and GAC Toyota Motor. Toyota now aims to better incorporate the knowledge of local partners into its cars.

Currently, in each of the two joint ventures the same vehicle is manufactured and sold with a different design and company name: the so-called “twin vehicles”. Going forward, production of each car will be consolidated into one of the joint ventures, two of the people said.

The models will be available at dealerships of both joint ventures.

Just as Japanese automakers have been affected, so have Japanese parts suppliers with operations in China.

Toyota announced in its results on Wednesday that operating income in China fell during the first half of the financial year, mainly due to higher marketing costs caused by strong price competition against Chinese brands.

In the midst of this competition, Mitsubishi Motors Corp. (OTC:) has withdrawn from China, while sling (NYSE:) Motor and Nissan (OTC:) Motor have decided to reduce local production capacity.