Toyota takes advantage of China-Japan thaw with Tianjin expansion plan
The expansion will also enable it to take advantage of the US-China trade rift, which has raised prices for Tesla, BMW and other brands in China
Beijing — Toyota is likely to make 120,000 more cars a year in the Chinese port city of Tianjin, said four company insiders with knowledge of the matter.
The increase is part of a medium-term strategy that is gathering pace as ties between China and Japan improve.
The Japanese carmaker’s plan to boost annual production capacity by about a quarter in the port city will lay the foundation to increase sales in China to 2-million vehicles a year, a jump of more than 50%, the four sources said.
The Tianjin expansion signals Toyota’s willingness to start adding significant manufacturing capacity in China, with the possibility of one or two new assembly plants in the world’s biggest car market, the sources said. Car imports could also increase, they said.
The move comes at a time when China’s trade outlook with the US appears fraught and uncertain.
Toyota plans to significantly expand its sales networks, and focus more on electric car technologies as part of the strategy, the sources said, declining to be identified as they are not authorised to speak to the media.
Toyota sold 1.29-million vehicles in China last year and, while sales are projected at 1.4-million this year, "capacity constraints" have restricted stronger growth, the sources said.
Toyota’s manufacturing hub in Tianjin currently has the capacity to produce 510,000 vehicles a year, while Toyota as a whole, between two joint ventures, has overall capacity to churn out 1.16-million vehicles a year.
Manufacturing capacity numbers provided by carmakers are called straight-time capacity without overtime. With overtime, a given assembly plant can produce 20%-30% more than its capacity.
According to two Tianjin government websites last week, Toyota has been given regulatory approval by the municipal government’s development and reform commission to pursue its expansion.
The two websites — including the official website for the Tianjin development district where Toyota’s production hub is based — said the Japanese carmaker plans to expand its Tianjin base to be able to manufacture 10,000 all-electric battery cars and 110,000 so-called plug-in electric hybrids annually.
It was not immediately clear when Toyota will be able to start producing those additional cars.
A Beijing-based Toyota spokesman declined to comment.
The Tianjin facilities, which produces cars such as the Toyota Corolla and Vios, are owned and operated by one of Toyota’s joint ventures in China.
The venture with FAW Group Corp in Tianjin plans to invest 1.76-billion yuan ($257m) for the expansion, according to the two Tianjin websites.
China is sometimes a market difficult in which to operate for Japanese companies because of historical reasons.
In 2012, cars sold by Toyota and other Japanese carmakers were battered when protests erupted across China after diplomatic spats over disputed islets known as Diaoyu in China and Senkaku in Japan.
Since then, Toyota has emphasised steady growth rather than taking on risky expansion projects.
According to the four sources, Toyota’s attitude towards China began changing markedly after an official visit to Japan by Chinese Premier Li Keqiang in May.
During the visit, Li toured Toyota’s facilities on the northern island of Hokkaido, and was escorted by Toyota’s family scion and CEO, Akio Toyoda.
Toyoda has since sought to boost his company’s presence in China, a vision that had culminated in an active effort to identify specific ways to do just that, according to the four sources.
They said aside from boosting capacity, Toyota is also looking at the possibility to significantly expand its distribution networks for the mainstream Toyota and premium Lexus brands.
The extent of those expansions was not immediately clear.
Toyota has more than 1,300 stores for the Toyota brand and nearly 190 for its Lexus luxury cars.
The timing for the China expansion could not be better.
Earlier this year, Toyota was able finally to launch a couple of much anticipated, potentially high-volume subcompact sport-utility vehicles (SUVs) — two China-market versions of the Toyota C-HR crossover SUV which hit showrooms in the US last year.
The C-HR variants are relatively small crossover SUVs that other manufacturers, most notably Japan’s Honda, have leveraged to grow sales rapidly and sell more cars in China than Toyota.
Honda sold 1.44-million vehicles in China last year.
Lexus is also deemed likely to benefit from a windfall from growing trade tension between China and the US.
In retaliation for US trade actions, China raised tariffs on cars imported from the US in early July to 40%, which, among other things, has forced Tesla, BMW, and Daimler’s Mercedes-Benz to raise prices on certain US-built vehicles, such as the hot-selling BMW X5 and X6 crossover sport-utility vehicles.
Likely consequences for those brands are sales falls, profit squeezes, or both.
By contrast, all Lexus cars that Toyota sells in China are brought in from Japan and benefit from a much lower tariff rate of 15% levied on non-US-produced car imports.