Reduced Import Tariffs in China Should Mean Big Business for Lexus

Posted by Kevin on May 29th, 2018

China has reduced automotive import tariffs from 25% to 15% in an effort to open up the country’s markets and spur development of the local auto sector.

The timing of this lower rate could not come at a better time for Lexus, the only luxury brand in China that imports 100% of its vehicles. The ES sedan is currently the best-selling import in the country, and its success has elevated Lexus to the second-largest vehicle importer in the country. Factor in the upcoming next-generation ES, and Lexus will be well-positioned to see a significant increase in overall sales.

China imported 1.22 million vehicles last year, or about 4.2 percent of the country’s total sales of about 28.9 million automobiles.

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Comments
A
Joaquin Ruhi
Are any of those reports in English? Or are they all Chinese-language?


That's true. If Lexus starts with a single model, you give it to one and anger the other. And setting up both FAW and GAC for Lexus-caliber quality and production processes doubles Toyota's expenses.


The next NX is expected to move to the Camry/Avalon GA-K platform, as its fraternal Toyota twin RAV4 just did for its 5th generation.


Interesting. Here in the U.S., Camry, Avalon and Lexus ES are all built in different sections of the same Georgetown, Kentucky plant. With both FAW and GAC building (TN)GA-K models, a theoretical Chinese ES could go either way (although FAW might have the upper hand since ES is closer to Avalon than to Camry).
The source was in Chinese
Joaquin Ruhi
Are any of those reports in English? Or are they all Chinese-language?


That's true. If Lexus starts with a single model, you give it to one and anger the other. And setting up both FAW and GAC for Lexus-caliber quality and production processes doubles Toyota's expenses.


The next NX is expected to move to the Camry/Avalon GA-K platform, as its fraternal Toyota twin RAV4 just did for its 5th generation.


Interesting. Here in the U.S., Camry, Avalon and Lexus ES are all built in different sections of the same Georgetown, Kentucky plant. With both FAW and GAC building (TN)GA-K models, a theoretical Chinese ES could go either way (although FAW might have the upper hand since ES is closer to Avalon than to Camry).
It was a Chinese report quoting a “leaked” production plan. Here is one link to it:
http://auto.sina.cn/newcar/x/2016-10-14/detail-ifxwvpar8074735.d.html
However a lot had happened since 2016 that could influence the final decision. The trade war going on right now might push Japanese auto OEMs to invest more in China or as @ssun30 said, the reduction of tariffs may discourage them from doing so.
A
Joaquin Ruhi
Are any of those reports in English? Or are they all Chinese-language?


That's true. If Lexus starts with a single model, you give it to one and anger the other. And setting up both FAW and GAC for Lexus-caliber quality and production processes doubles Toyota's expenses.


The next NX is expected to move to the Camry/Avalon GA-K platform, as its fraternal Toyota twin RAV4 just did for its 5th generation.


Interesting. Here in the U.S., Camry, Avalon and Lexus ES are all built in different sections of the same Georgetown, Kentucky plant. With both FAW and GAC building (TN)GA-K models, a theoretical Chinese ES could go either way (although FAW might have the upper hand since ES is closer to Avalon than to Camry).
The source was in Chinese
Joaquin Ruhi
Are any of those reports in English? Or are they all Chinese-language?


That's true. If Lexus starts with a single model, you give it to one and anger the other. And setting up both FAW and GAC for Lexus-caliber quality and production processes doubles Toyota's expenses.


The next NX is expected to move to the Camry/Avalon GA-K platform, as its fraternal Toyota twin RAV4 just did for its 5th generation.


Interesting. Here in the U.S., Camry, Avalon and Lexus ES are all built in different sections of the same Georgetown, Kentucky plant. With both FAW and GAC building (TN)GA-K models, a theoretical Chinese ES could go either way (although FAW might have the upper hand since ES is closer to Avalon than to Camry).
It was a Chinese report quoting a “leaked” production plan. Here is one link to it:
http://auto.sina.cn/newcar/x/2016-10-14/detail-ifxwvpar8074735.d.html
However a lot had happened since 2016 that could influence the final decision. The trade war going on right now might push Japanese auto OEMs to invest more in China or as @ssun30 said, the reduction of tariffs may discourage them from doing so.
A
ssun30
Probably next year.




Chinese auto press are consistently unreliable when it comes to rumors. We've been hearing about the Corolla getting the BMW B38 (1.5t Inline-3) since 2015 except it's not happening. They predicted last year the new GA-L Crown will be produced at FAW when there was solid information on Avalon replacing the Crown. They even reported end of Prado production when that thing is selling 5k per month (although the recent facelift is a major flop and end of production could be a possibility). So I will consider the IS rumor BS with maybe 0.2% credibility.

The IS is the most 'un-China' car you can imagine due to its abysmal rear legroom. They would have to make an IS-L that will basically be the spiritual successor to the GS. Oh, wait, that may actually be a good idea.

Anyway, seeing how the 'unattractive' 6ES is now consistently a best seller, they will have zero incentive to produce 7ES at FAW in the short term. The only way I can see a made-in-China Lexus is after 2022, when China completely removes restrictions on percentage of ownership in the JV (currently 50%) for foreign automakers. That way TMC can have maximum control over every Lexus vehicle produced.
I could take your point the IS is not China friendly at the moment but that could be the exact reason why Lexus want to make it in China: to receive exact same treatment as BMW 3-Series. The current IS does not sell because it is the original BMW 3 in Lexus badge. Making a longwheel base version will help a lot. Why do they want to make the hassle? Because the target audience for IS and BMW 3 is critical to their success in China: young, affluent and adventurous owners who love to try new things and will probably stick to the brand when they get older.
A
ssun30
Probably next year.




Chinese auto press are consistently unreliable when it comes to rumors. We've been hearing about the Corolla getting the BMW B38 (1.5t Inline-3) since 2015 except it's not happening. They predicted last year the new GA-L Crown will be produced at FAW when there was solid information on Avalon replacing the Crown. They even reported end of Prado production when that thing is selling 5k per month (although the recent facelift is a major flop and end of production could be a possibility). So I will consider the IS rumor BS with maybe 0.2% credibility.

The IS is the most 'un-China' car you can imagine due to its abysmal rear legroom. They would have to make an IS-L that will basically be the spiritual successor to the GS. Oh, wait, that may actually be a good idea.

Anyway, seeing how the 'unattractive' 6ES is now consistently a best seller, they will have zero incentive to produce 7ES at FAW in the short term. The only way I can see a made-in-China Lexus is after 2022, when China completely removes restrictions on percentage of ownership in the JV (currently 50%) for foreign automakers. That way TMC can have maximum control over every Lexus vehicle produced.
I could take your point the IS is not China friendly at the moment but that could be the exact reason why Lexus want to make it in China: to receive exact same treatment as BMW 3-Series. The current IS does not sell because it is the original BMW 3 in Lexus badge. Making a longwheel base version will help a lot. Why do they want to make the hassle? Because the target audience for IS and BMW 3 is critical to their success in China: young, affluent and adventurous owners who love to try new things and will probably stick to the brand when they get older.
S
amoschen7
The source was in Chinese

It was a Chinese report quoting a “leaked” production plan. Here is one link to it:
http://auto.sina.cn/newcar/x/2016-10-14/detail-ifxwvpar8074735.d.html
However a lot had happened since 2016 that could influence the final decision. The trade war going on right now might push Japanese auto OEMs to invest more in China or as @ssun30 said, the reduction of tariffs may discourage them from doing so.
Thats Toyota launch plans for new vehicles, not local production.

So whats listed under GA-K for 2020-7? Now we can be sure new NX is out in 07-2020, as well as new IS, both of which make sense.
S
amoschen7
The source was in Chinese

It was a Chinese report quoting a “leaked” production plan. Here is one link to it:
http://auto.sina.cn/newcar/x/2016-10-14/detail-ifxwvpar8074735.d.html
However a lot had happened since 2016 that could influence the final decision. The trade war going on right now might push Japanese auto OEMs to invest more in China or as @ssun30 said, the reduction of tariffs may discourage them from doing so.
Thats Toyota launch plans for new vehicles, not local production.

So whats listed under GA-K for 2020-7? Now we can be sure new NX is out in 07-2020, as well as new IS, both of which make sense.
A
spwolf
Lexus will make cars in China when it can make them cheaper than in Japan. And by cheaper I mean total cost of investment + production costs.

Maybe when sales of ES, RX and NX reach some target like 200k-300k vehicles, it will make more sense? With EU agreements with Japan, Canada and EU, US and Korea, it is becoming cheaper for them to export from Japan, USA and Canada, so Chinese production has to be for China only.
I would say cost should not be the only concern when planning a overseas production plant. Politics stability and production capabilities are also very important. Remember back in 2013 the island dispute between China and Japan made a huge slash on Japanese car sales. It was that year Passat (EU version) and Magotan (Passat US version) exceeded Camry and Accord in Chinese market. The same happens across other level of cars and SUVs too.
At the moment Lexus is well received in a lot of places in China, but their sales number is not impressive because of limited dealerships and production capacities. You have to order your car to be produced instead of getting it right from the dealship for quite a few models.
It all depends how Toyota sees the future market in China and how much they want to invest.
A
spwolf
Lexus will make cars in China when it can make them cheaper than in Japan. And by cheaper I mean total cost of investment + production costs.

Maybe when sales of ES, RX and NX reach some target like 200k-300k vehicles, it will make more sense? With EU agreements with Japan, Canada and EU, US and Korea, it is becoming cheaper for them to export from Japan, USA and Canada, so Chinese production has to be for China only.
I would say cost should not be the only concern when planning a overseas production plant. Politics stability and production capabilities are also very important. Remember back in 2013 the island dispute between China and Japan made a huge slash on Japanese car sales. It was that year Passat (EU version) and Magotan (Passat US version) exceeded Camry and Accord in Chinese market. The same happens across other level of cars and SUVs too.
At the moment Lexus is well received in a lot of places in China, but their sales number is not impressive because of limited dealerships and production capacities. You have to order your car to be produced instead of getting it right from the dealship for quite a few models.
It all depends how Toyota sees the future market in China and how much they want to invest.
A
spwolf
Thats Toyota launch plans for new vehicles, not local production.

So whats listed under GA-K for 2020-7? Now we can be sure new NX is out in 07-2020, as well as new IS, both of which make sense.
If you take a closer look you can see there is also manufacturers associated with each model.
That’s why they say domestic production.
But it is old news in 2016, a lot might have changed since.
A
spwolf
Thats Toyota launch plans for new vehicles, not local production.

So whats listed under GA-K for 2020-7? Now we can be sure new NX is out in 07-2020, as well as new IS, both of which make sense.
If you take a closer look you can see there is also manufacturers associated with each model.
That’s why they say domestic production.
But it is old news in 2016, a lot might have changed since.
A
spwolf
Thats Toyota launch plans for new vehicles, not local production.

So whats listed under GA-K for 2020-7? Now we can be sure new NX is out in 07-2020, as well as new IS, both of which make sense.
If you take a closer look you can see there is also manufacturers associated with each model.
That’s why they say domestic production.
But it is old news in 2016, a lot might have changed since.
S
amoschen7
If you take a closer look you can see there is also manufacturers associated with each model.
That’s why they say domestic production.
But it is old news in 2016, a lot might have changed since.
It looks very much like Toyota model plan not local production. ES will certainly not be produced there in 3 months, nor will be NX and IS.
It basically lists FMC for Toyota and Lexus, of course Toyota will be locally produced.

It takes them at least 3-4 years from announcing the factory to production, since it requires negotiation with local government on subsidies and tax breaks.
So new factory will not automatically appear, it will have to be announced long before that.

Plus with drop in tariffs, it is unlikely it will happen until they get a lot more sales from their GA-K vehicles at least. Something like IS will likely never be produced in China.
S
amoschen7
If you take a closer look you can see there is also manufacturers associated with each model.
That’s why they say domestic production.
But it is old news in 2016, a lot might have changed since.
It looks very much like Toyota model plan not local production. ES will certainly not be produced there in 3 months, nor will be NX and IS.
It basically lists FMC for Toyota and Lexus, of course Toyota will be locally produced.

It takes them at least 3-4 years from announcing the factory to production, since it requires negotiation with local government on subsidies and tax breaks.
So new factory will not automatically appear, it will have to be announced long before that.

Plus with drop in tariffs, it is unlikely it will happen until they get a lot more sales from their GA-K vehicles at least. Something like IS will likely never be produced in China.
S
amoschen7
If you take a closer look you can see there is also manufacturers associated with each model.
That’s why they say domestic production.
But it is old news in 2016, a lot might have changed since.
It looks very much like Toyota model plan not local production. ES will certainly not be produced there in 3 months, nor will be NX and IS.
It basically lists FMC for Toyota and Lexus, of course Toyota will be locally produced.

It takes them at least 3-4 years from announcing the factory to production, since it requires negotiation with local government on subsidies and tax breaks.
So new factory will not automatically appear, it will have to be announced long before that.

Plus with drop in tariffs, it is unlikely it will happen until they get a lot more sales from their GA-K vehicles at least. Something like IS will likely never be produced in China.
A
Lexus China announced that it will cut the retail price for most of its models in response to the tariff cut:
http://www.lexus.com.cn/node/3303
I can not find the reference for LS
For current NX ES and RX the price cut for base model is around $3,000, with the the retail price for NX and ES are around $47,000 and RX being $62,500.
They did not mention IS/GS/LC in the news.
A
Lexus China announced that it will cut the retail price for most of its models in response to the tariff cut:
http://www.lexus.com.cn/node/3303
I can not find the reference for LS
For current NX ES and RX the price cut for base model is around $3,000, with the the retail price for NX and ES are around $47,000 and RX being $62,500.
They did not mention IS/GS/LC in the news.
A
Lexus China announced that it will cut the retail price for most of its models in response to the tariff cut:
http://www.lexus.com.cn/node/3303
I can not find the reference for LS
For current NX ES and RX the price cut for base model is around $3,000, with the the retail price for NX and ES are around $47,000 and RX being $62,500.
They did not mention IS/GS/LC in the news.
S
amoschen7
Lexus China announced that it will cut the retail price for most of its models in response to the tariff cut:
http://www.lexus.com.cn/node/3303
I can not find the reference for LS
For current NX ES and RX the price cut for base model is around $3,000, with the the retail price for NX and ES are around $47,000 and RX being $62,500.
They did not mention IS/GS/LC in the news.
table below that article has every single car and edition listed with new pricing... can you guys check how good is the pricing and how it compares to before?
S
amoschen7
Lexus China announced that it will cut the retail price for most of its models in response to the tariff cut:
http://www.lexus.com.cn/node/3303
I can not find the reference for LS
For current NX ES and RX the price cut for base model is around $3,000, with the the retail price for NX and ES are around $47,000 and RX being $62,500.
They did not mention IS/GS/LC in the news.
table below that article has every single car and edition listed with new pricing... can you guys check how good is the pricing and how it compares to before?
S
amoschen7
Lexus China announced that it will cut the retail price for most of its models in response to the tariff cut:
http://www.lexus.com.cn/node/3303
I can not find the reference for LS
For current NX ES and RX the price cut for base model is around $3,000, with the the retail price for NX and ES are around $47,000 and RX being $62,500.
They did not mention IS/GS/LC in the news.
table below that article has every single car and edition listed with new pricing... can you guys check how good is the pricing and how it compares to before?
A
spwolf
table below that article has every single car and edition listed with new pricing... can you guys check how good is the pricing and how it compares to before?
My bad... did not notice there is a table.
But it only provides the price after change. You can get the USD equivalent of the each price by deviding 6.4 at the moment.
I do not remember the previous price other than base NX ES and RX, so I could only guess the cut is about 7% over all. The larger displacement models probably benefit modestly more by this policy.
A
spwolf
table below that article has every single car and edition listed with new pricing... can you guys check how good is the pricing and how it compares to before?
My bad... did not notice there is a table.
But it only provides the price after change. You can get the USD equivalent of the each price by deviding 6.4 at the moment.
I do not remember the previous price other than base NX ES and RX, so I could only guess the cut is about 7% over all. The larger displacement models probably benefit modestly more by this policy.
A
spwolf
table below that article has every single car and edition listed with new pricing... can you guys check how good is the pricing and how it compares to before?
My bad... did not notice there is a table.
But it only provides the price after change. You can get the USD equivalent of the each price by deviding 6.4 at the moment.
I do not remember the previous price other than base NX ES and RX, so I could only guess the cut is about 7% over all. The larger displacement models probably benefit modestly more by this policy.
S
spwolf
table below that article has every single car and edition listed with new pricing... can you guys check how good is the pricing and how it compares to before?
It's a 7-8% drop across the board. However before the tax reduction Lexus dealers are already offering these prices. With the price drop they are unlikely to continue the same cash incentive and instead resort to better financing packages like more 0% APR offers. Customers won't get the full benefit of this price drop, but it's a good thing as dealers can now make more money and maintain a higher standard of service.

I wonder if weak LS sales are because of these price drops. Dealers got the message in January and told some core buyers to hold off the purchase. I erroneously reported that Lexus dealers have to offer incentive packages to sell the LS, but it seems that they are just getting ready for the price drop. We'll see the true sales figures of the LS after July.
S
spwolf
table below that article has every single car and edition listed with new pricing... can you guys check how good is the pricing and how it compares to before?
It's a 7-8% drop across the board. However before the tax reduction Lexus dealers are already offering these prices. With the price drop they are unlikely to continue the same cash incentive and instead resort to better financing packages like more 0% APR offers. Customers won't get the full benefit of this price drop, but it's a good thing as dealers can now make more money and maintain a higher standard of service.

I wonder if weak LS sales are because of these price drops. Dealers got the message in January and told some core buyers to hold off the purchase. I erroneously reported that Lexus dealers have to offer incentive packages to sell the LS, but it seems that they are just getting ready for the price drop. We'll see the true sales figures of the LS after July.
S
spwolf
table below that article has every single car and edition listed with new pricing... can you guys check how good is the pricing and how it compares to before?
It's a 7-8% drop across the board. However before the tax reduction Lexus dealers are already offering these prices. With the price drop they are unlikely to continue the same cash incentive and instead resort to better financing packages like more 0% APR offers. Customers won't get the full benefit of this price drop, but it's a good thing as dealers can now make more money and maintain a higher standard of service.

I wonder if weak LS sales are because of these price drops. Dealers got the message in January and told some core buyers to hold off the purchase. I erroneously reported that Lexus dealers have to offer incentive packages to sell the LS, but it seems that they are just getting ready for the price drop. We'll see the true sales figures of the LS after July.
S
ssun30
It's a 7-8% drop across the board. However before the tax reduction Lexus dealers are already offering these prices. With the price drop they are unlikely to continue the same cash incentive and instead resort to better financing packages like more 0% APR offers. Customers won't get the full benefit of this price drop, but it's a good thing as dealers can now make more money and maintain a higher standard of service.

I wonder if weak LS sales are because of these price drops. Dealers got the message in January and told some core buyers to hold off the purchase. I erroneously reported that Lexus dealers have to offer incentive packages to sell the LS, but it seems that they are just getting ready for the price drop. We'll see the true sales figures of the LS after July.
I doubt Lexus told dealers to wait for sales, it is likely they simply dont have enough production since Japanese first few months demand was too crazy.
S
ssun30
It's a 7-8% drop across the board. However before the tax reduction Lexus dealers are already offering these prices. With the price drop they are unlikely to continue the same cash incentive and instead resort to better financing packages like more 0% APR offers. Customers won't get the full benefit of this price drop, but it's a good thing as dealers can now make more money and maintain a higher standard of service.

I wonder if weak LS sales are because of these price drops. Dealers got the message in January and told some core buyers to hold off the purchase. I erroneously reported that Lexus dealers have to offer incentive packages to sell the LS, but it seems that they are just getting ready for the price drop. We'll see the true sales figures of the LS after July.
I doubt Lexus told dealers to wait for sales, it is likely they simply dont have enough production since Japanese first few months demand was too crazy.
S
ssun30
It's a 7-8% drop across the board. However before the tax reduction Lexus dealers are already offering these prices. With the price drop they are unlikely to continue the same cash incentive and instead resort to better financing packages like more 0% APR offers. Customers won't get the full benefit of this price drop, but it's a good thing as dealers can now make more money and maintain a higher standard of service.

I wonder if weak LS sales are because of these price drops. Dealers got the message in January and told some core buyers to hold off the purchase. I erroneously reported that Lexus dealers have to offer incentive packages to sell the LS, but it seems that they are just getting ready for the price drop. We'll see the true sales figures of the LS after July.
I doubt Lexus told dealers to wait for sales, it is likely they simply dont have enough production since Japanese first few months demand was too crazy.
S
The Lexus NX soars 56% year-on-year to #3. ES up 14%.

https://bestsellingcarsblog.com/2018/05/china-imports-april-2018-lexus-up-34-to-2-below-mercedes/

S