China

Lexus Serious about Manufacturing Vehicles in China

Lexus Manufacturing China

According to a report from Reuters, Lexus is considering a move to produce vehicles in China for the local market:

Toyota’s preferred option is to own all or most of a localized Lexus unit, which it could do immediately by building only electric cars. (Lexus has plans for electric battery and plug-in electric hybrid versions of existing models.)

Two of the Toyota insiders said the automaker had identified specific scenarios for localizing Lexus.

“All the preparation has been more or less completed,” one said. “All we’re waiting is a ‘go’ from management.”

Lexus has long maintained that vehicles produced in China would not meet its high build standards, and the commitment to quality has pushed the brand to a niche position in the region — last year, Mercedes-Benz sold about 610,000 vehicles, compared to 130,000 for Lexus.

Even so, the plan does have its detractors:

Opponents inside Toyota also point to China’s lowering tariffs on passenger cars to 15 percent from 25 percent in July as a reason to keep importing Lexuses.

They also note that the nearest Lexus plant to China is at the northern tip of Japan’s southernmost main island of Kyushu — only two days from Shanghai by sea.

Comments
looks to me like a done deal, when you have 4 "insiders" talking to Reuters.

If they can build RX and NX together in same plant, it makes a lot of sense... these cars can sell 120k today, and should be able to do 150k easily without customs, and that is a good output for a plant.
The news got to Reuters first before being picked up by any chinese media because of the national holiday I guess?

My POV has always been that if they don't have to produce locally to reach 300k (which they certainly could) then they should stay away. At best it will produce some EVs within existing Toyota facilities. I just don't see there's extra capacity lying around for their mainstream models.

It's also very important to balance its two partners to not create a Honda/Acura situation, where GAC and FAW are hindering each other not progressing the brand. Imagine the ES goes to GAC, FAW will riot because it will basically kill its Avalon program.
ssun30
It's also very important to balance its two partners to not create a Honda/Acura situation, where GAC and FAW are hindering each other not progressing the brand. Imagine the ES goes to GAC, FAW will riot because it will basically kill its Avalon program.
Would, for example, GAC building ES and FAW building RX and NX create some sort of balance acceptable to both?

Also, how is the Toyota C-HR / Izoa sharing between GAC and FAW working out so far?
ssun30
The news got to Reuters first before being picked up by any chinese media because of the national holiday I guess?

My POV has always been that if they don't have to produce locally to reach 300k (which they certainly could) then they should stay away. At best it will produce some EVs within existing Toyota facilities. I just don't see there's extra capacity lying around for their mainstream models.

It's also very important to balance its two partners to not create a Honda/Acura situation, where GAC and FAW are hindering each other not progressing the brand. Imagine the ES goes to GAC, FAW will riot because it will basically kill its Avalon program.
I think implication here is that they would do their own Lexus factory that is going to be possible soon.

Usually when these things "leak" to the press, decision is already made, so look in announcement for new Lexus factory in Japan to be completed in next 3-4 years.
spwolf
I think implication here is that they would do their own Lexus factory that is going to be possible soon.

Usually when these things "leak" to the press, decision is already made, so look in announcement for new Lexus factory in Japan to be completed in next 3-4 years.
Own factory could be a really good way to do it. They just have to make the concession that they don't reduce price to the point FAW and GAC suffers (so no ES at Avalon price). That means not much price reduction (less than ¥20k), but huge increase in profit. Their mainstream products don't need price cuts to compete well: the imported ES, NX, and RX are already cheaper than locally produced competitors.

Joaquin Ruhi
Also, how is the Toyota C-HR / Izoa sharing between GAC and FAW working out so far?
It is surprisingly balanced unlike the Corolla/Levin scenario, where FAW outsells GAC 2-to-1. FAW sold 3,678 Izoas while GAC sold 3,756 C-HRs in August. Both will need a few months to establish themselves in the segment. Toyota's goal is 8,000 units each for a total of 200k a year. I doubt they will hit that target this year due to the obvious lack of low-end (1.2T) trims and hybrids, a point that is widely criticized. Most sales at this point are top trims which are more expensive than a mid-range RAV4.
All four insiders declined to be identified because they are not authorized to speak to the media.

^^^^^^ To me, this begs the question of why this story is even being printed to start with. Employees are either authorized to give press-releases or they aren't. And those that aren't probably shouldn't be yakking. But, for what it's worth, here is the article.


http://www.asahi.com/ajw/articles/AJ201810060038.html

Toyota, sensing an opening, debates building Lexus cars in China
REUTERS

October 6, 2018 at 18:00 JST

  • Print
BEIJING--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 told Reuters.

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 told Reuters.

All four insiders declined to be identified because they are not authorized 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 localizing Lexus.

"All the preparation has been more or less completed," one said. "All we're waiting is a 'go' from management."



TRICKY TIMING



Toyota's preferred option is to own all or most of a localized Lexus unit, which it could do immediately by building only electric cars. (Lexus has plans for electric battery and plug-in electric hybrid versions of existing models.)

But China might not let another brand in when the market has slowed down significantly, with sales of some foreign vehicles, including Groupe PSA, Ford and Hyundai, all falling in the gutter in recent months.

"You'd still need a good political follow-wind to execute this," one of the sources said, pointing to help from Japanese Prime Minister Shinzo Abe, who has a state visit to China planned for this month.

Even as other premium brands--such as Audi, BMW, Mercedes-Benz and Cadillac--have opened assembly plants in China to gain market share, Toyota has resisted.

That reluctance reflects the company's unwillingness to share with a Chinese partner a brand painstakingly built since 1989 into a top premium car in the United States.

Opponents inside Toyota also point to China's lowering tariffs on passenger cars to 15 percent from 25 percent in July as a reason to keep importing Lexuses.

They also note that the nearest Lexus plant to China is at the northern tip of Japan's southernmost main island of Kyushu--only two days from Shanghai by sea.

A Toyota spokesman in Tokyo said "the most important task" for Lexus is to become a distinguished brand in China.

"We always weigh the need for localizing production as part of the consideration for the Lexus brand's future in China," he said. "But at this point in time, we don't have any specific plans for producing Lexus cars in China."

Nonetheless, support for localization is growing among Toyota leaders.

China has typically been a difficult market for Japanese companies, but there is new optimism, especially after an official visit to Japan by Chinese Premier Li Keqiang in May.

During his visit, Li toured Toyota facilities on the northern island of Hokkaido, escorted by the company's family scion and chief executive, Akio Toyoda.

Toyoda has since sought to boost his company's presence in China, including an effort to significantly expand its manufacturing capacity and distribution networks, and share more technologies with Chinese companies.



NEED FOR SPEED



China has also proposed limiting new production capacity for automakers, adding an incentive for Toyota to move quickly if it wants to build Lexus models there.

Nissan Motor Co. and Toyota have each recently revealed plans to boost capacity, much of which will be used to produce electric cars.

Alan Kang, a Shanghai-based analyst for consultancy LMC Automotive, thinks localizing production is exactly what Lexus needs to start narrowing the big sales gap with German premium brands.

Mercedes-Benz, for example, last year sold about 610,000 vehicles, compared to 130,000 for Lexus during the same year, according to LMC.

"If Lexus doesn't want to remain a niche, it needs to start investing more," Kang said.
A
ssun30
due to the obvious lack of low-end (1.2T) trims and hybrids, a point that is widely criticized. Most sales at this point are top trims which are more expensive than a mid-range RAV4.
This is easily explained. The 1.2T costs more to build than the 2.0 NA.
arrow1982
This is easily explained. The 1.2T costs more to build than the 2.0 NA.
Yes. And that is why they have a 1.5 TNGA engine for it.
Not a good strategy, IMO. Lexus production should remain in Japan. They should not prioritize sales number over quality. It seems Akio has forgotten Toyota declining quality when they emphasized on volume back in 2010 (if I am not mistaken).
Ray99
Lexus production should remain in Japan. They should not prioritize sales number over quality.

Building vehicles in China, today, does not necessarily compromise quality. The Buick Envision, sold in the U.S. but built in China, appears to be as well-constructed and assembled as anything I have seen from Japan or Korea. I did a full-review on one when it first debuted here in the U.S.
Ray99
Not a good strategy, IMO. Lexus production should remain in Japan. They should not prioritize sales number over quality. It seems Akio has forgotten Toyota declining quality when they emphasized on volume back in 2010 (if I am not mistaken).
I doubt Akio has forgotten anything... sometimes to sell you have to produce locally due to high taxes. I have little doubt that Lexus China production will be up to par. Their Toyota factories have been running in China for a long time.

S
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