Toyota eyes Tianjin as base for raising sales
View of China changes after Premier Li visits Japan
Toyota Motor Corp is likely to make 120,000 more cars a year in the port city of North China’s Tianjin as part of a medium-term strategy that’s gathering pace as China-Japan ties improve, said four company insiders with knowledge of the matter.
The Japanese automaker’s plan to boost annual production capacity by about one-quarter in the city will lay the foundation to increase sales in China to 2 million vehicles per year, a jump of more than 50 percent, the 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 auto 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 expand its sales networks significantly and put more focus on electric car technologies as part of the strategy, the sources said, declining to be identified as they are not authorized 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 annual capacity for 1.16 million vehicles.
With overtime, a given assembly plant can produce 20 percent to 30 percent more than its capacity.
According to two Tianjin government websites, 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 automaker plans to expand its Tianjin base to be able to manufacture 10,000 all-electric battery cars and 110,000 socalled plug-in electric hybrids annually.
It wasn’t immediately clear when Toyota would be able to start producing those additional cars.
A Beijing-based Toyota spokesperson declined to comment.
The Tianjin facilities, which produce cars such as the Toyota Corolla and Vios cars, 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 ($257 million) for the expansion, according to the two Tianjin websites.
Historical backlash
China is sometimes a difficult market to operate in for Japanese companies because of historical reasons.
In 2012, cars sold by Toyota and other Japanese automakers were battered when protests erupted across China after diplomatic spats over disputed islands.
Since then, Toyota has emphasized steady growth rather than taking on risky expansion projects.
According to the four sources, Toyota’s attitude toward China began changing markedly after Chinese Premier Li Keqiang paid an official visit to Japan in May.
During the visit, Li toured Toyota’s facilities on the northern island of Hokkaido, and he was escorted by Toyota’s family scion and Chief Executive Akio Toyoda.
Toyoda has since sought to boost his company’s presence in China, a vision that 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 of significantly expand its distribution networks for the mainstream Toyota and premium Lexus brands.
It wasn’t immediately clear how significant a distribution network expansion Toyota is planning for both brands.
Toyota has more than 1,300 stores for the Toyota brand and nearly 190 for its Lexus luxury cars in China.
Right timing
Rival Nissan Motor Co and its Chinese joint-venture partner Dongfeng Group intend to invest about $900 million to boost vehicle-making capacity in China by 40 percent by 2021, a source familiar with the plan told Reuters on August 16. That would boost Nissan’s vehicle production capacity in China to as many as 2.1 million vehicles a year.
Nissan, along with Toyota, Ford Motor Co, and Honda Motor Co, lag far behind General Motors Co and Volkswagen AG, each selling 1 million-plus vehicles a year.
Nissan wants to break out of this second tier to become a Top 3 China automaker, Nissan China leaders have said.
The timing for the China expansion couldn’t be better.
Earlier this year, Toyota was able to finally launch a couple of much anticipated, potentially high-volume subcompact sport utility vehicles (SUVs). These were 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 Motor Co, have leveraged to expand sales rapidly and sell more cars in China than its much bigger rival Toyota. Honda sold 1.44 million vehicles in China last year.
Lexus is also deemed likely to benefit from a windfall from growing trade tensions between China and the US.
In retaliation for US trade actions, China raised tariffs on vehicles imported from the US in early July to 40 percent. This move, among other things, has forced Tesla Inc, BMW, and Daimler AG’s Mercedes-Benz to raise prices on certain US-built vehicles, such as the hot-selling BMW X5 and X6 crossover SUVs.
One likely consequence for those brands is a sales fall, a profit squeeze, or both.
By contrast, all Lexus cars Toyota sells in China are brought in from Japan and benefit from a much lower tariff rate of 15 percent levied on nonUS produced car imports.