Toyota debates building Lexus cars in China

October 7, 2018

Toyota Motor Corp, long opposed to producing its premium Lexus cars in China because of concerns over quality and profitability, is now considering it to ignite growth and narrow sales gaps with its German rivals, four company insiders said.
The company, which imports Lexus models made in Japan to sell in China, has spent the last two years researching how to produce them locally.
Toyota also talked to its Chinese joint-venture partners — Guangzhou Automobile Group Co and FAW Group — last year about Lexus models. It wasn’t clear whether Toyota approached the Chinese companies about a partnership or vice versa.
Local production would be a major shift for the world’s largest automaker, encouraged by improved China-Japan ties, as well as new Chinese investment rules that might allow foreign automakers to fully own or majority-control China operations.
“We’re torn over this,” said one of the insiders. “But it makes little sense to let this opportunity slip by,” another said.
All four insiders declined to be identified because they are not authorised to speak to the media.
China’s planned scrapping of foreign ownership restrictions in the auto industry is in part a response to criticism that Chinese companies have been largely allowed to invest freely in outside markets while Beijing limits foreign firms’ access to the world’s second-largest economy.
The rule changes — affecting electric carmakers this year and others by 2022 — led Tesla Inc to gain Beijing’s approval for a wholly-owned China manufacturing and sales company in Shanghai. That marked the first time a foreign carmaker established itself in China without a partner.
Toyota already produces numerous Toyota-brand models, including the Camry, Highlander, Corolla, Levin and Crown, in China with partners. Last year, it sold 1.29 million cars there, including imported Lexuses.
Toyota had contemplated moving Lexus production to China before — as far back as 2011-12, according to one of the four insiders. But it had until now considered a potential erosion of quality too much of a risk, and didn’t want to sacrifice the brand’s relatively high margins by sharing profits with a local partner.
Two of the Toyota insiders said the automaker had identified specific scenarios for localising Lexus.
“All the preparation has been more or less completed,” one said. “All we’re waiting is a ‘go’ from management.” — Reuters

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