Toyota is planning an ambitious overhaul of its China operations, aiming to produce at least 2.5 million vehicles annually in the country by 2030. This strategic shift reflects Toyota’s growing focus on the Chinese market as it looks to reclaim market share lost to local electric vehicle (EV) leaders like BYD and other Chinese automakers, who have been outpacing foreign brands in the rapidly evolving EV sector.

The move comes as other Japanese and global automakers, such as Nissan and Mitsubishi, scale back their presence in China due to increasing competition and production costs. Toyota, however, is taking a different approach by strengthening its local presence and empowering Chinese-based teams to cater more closely to local consumer demands, especially in electrified and connected car technology.

Expanding Production Capacity to Compete with Local Giants

Toyota’s new plan involves bringing its sales and production teams closer together within its two Chinese joint ventures, FAW Toyota and GAC Toyota, aiming to streamline operations and enhance efficiency. The company reportedly plans to raise production capacity up to 3 million vehicles per year by the end of the decade, though it has not set a formal target. This increase would mark a significant boost from Toyota’s 2022 production record in China of 1.84 million vehicles.

This planned expansion not only demonstrates Toyota’s commitment to the Chinese market but also signals its intentions to assure suppliers of its long-term presence. In a market that has seen rapid shifts towards locally made EVs, Toyota has already informed key parts suppliers of its expansion plans to safeguard its supply chain in the face of China’s intense automotive competition.

Shifting Development Focus to Local Staff for Faster Innovation

To better compete with local players, Toyota’s strategy now includes delegating more autonomy to its China-based teams for product development and market adaptation. By transferring development responsibilities to local staff who better understand consumer preferences, Toyota aims to accelerate the rollout of models that resonate with Chinese buyers.

The decision to rely on local teams underscores Toyota’s recognition that the Chinese market has its own set of unique demands, especially in the realm of electric and connected vehicles. Chinese consumers have shown a strong preference for locally manufactured EVs, which are often more affordable and integrated with advanced digital features that appeal to tech-savvy buyers.

Historically, Toyota’s joint ventures in China produced “twinned” vehicles—a practice where each joint venture makes and sells similar models with slight design differences under distinct branding. However, under the new strategy, Toyota intends to consolidate production of each model within a single joint venture to avoid redundancy and improve cost efficiency. Both FAW Toyota and GAC Toyota dealerships will offer these consolidated models, ensuring more streamlined offerings for consumers.

Facing the Competitive Pressure of Local EV Makers

Toyota’s decision to revamp its approach in China comes after a series of losses to domestic EV manufacturers. Chinese EV brands like BYD, Nio, and GAC’s Aion have captured substantial market share with their affordable electric models featuring cutting-edge technology, advanced software, and sleek designs. BYD, for example, has seen rapid growth with a lineup of affordable EVs that challenge foreign automakers on both price and innovation.

Recognizing the urgency to adapt, Toyota’s recent restructuring reflects a growing awareness that it must respond to this competition quickly. “It will be too late if Toyota doesn’t act now,” said one insider close to the company’s operations. Toyota has already taken steps to enhance its research and development capabilities in China, with plans for closer collaboration between its local R&D center in Jiangsu province and its joint ventures.

The Japanese giant’s current lineup has struggled in comparison to some domestically developed vehicles by its joint venture partners. For instance, FAW Group’s Hongqi and GAC Group’s Aion models have outperformed similar models from FAW Toyota and GAC Toyota. With the latest strategic changes, Toyota aims to incorporate more insights from its local partners, hoping that this knowledge-sharing will help it better meet the tastes of Chinese customers.

A Challenge for Japanese Automakers and Suppliers

Toyota’s renewed focus on China comes amid a challenging period for Japanese automakers in the region. While Toyota is doubling down on its China strategy, other Japanese automakers are scaling back. Mitsubishi Motors has already exited the Chinese market, and Nissan has announced a reduction in production capacity. Honda has also scaled back operations, highlighting the uphill battle for foreign automakers amid fierce competition from domestic brands.

This market pressure is not only impacting Japanese automakers but also Japanese parts suppliers operating in China. Toyota reported a decline in operating income in China for the first half of its fiscal year, attributing the drop to increased marketing costs to counter the competitive pricing strategies of Chinese brands.

Japanese automakers’ losses underscore how the rapid rise of Chinese EV manufacturers has reshaped the automotive landscape in China. Companies like BYD have leveraged government incentives and consumer preferences for green vehicles, pushing them to the forefront of the market. Toyota’s latest moves reflect an acknowledgment that its previous strategies were insufficient to keep up with the fast-paced Chinese EV market.

Looking Ahead: Toyota’s Strategy to Reclaim Market Share

Toyota’s bold plan to increase production and localize development in China signals a significant shift in its approach, one that aims to address its shortcomings in a market that has changed dramatically in recent years. By empowering local teams, investing in research and development, and adapting its operations to produce more China-tailored models, Toyota hopes to regain ground against formidable domestic competitors.

As the EV market in China continues to expand, Toyota’s strategy will be closely watched. The success of this pivot could not only shape Toyota’s future in China but also serve as a case study for other global automakers facing similar challenges in an increasingly competitive and fast-paced market. With increased production targets and localized innovations, Toyota aims to reclaim its place in the world’s largest car market—provided it can meet the expectations of China’s rapidly evolving consumer base.

(Adapted from Reuters.com)

Categories: Economy & Finance, HR & Organization, Strategy