Toyota can't give up China, but does China still need Lexus?

Tencent News Deep Web

2024-07-11 09:23Published on the official account of the "Deep Web" column of Tencent News in Beijing

Author丨Cheng Xiaoyi  

Editor丨Ye Jinyan

Produced by 丨Deep Web · Tencent News Xiaoman Studio

Editor's note:

This article is the 001st article in the series of "Life and Death Racing", which focuses on the latest developments in the domestic auto market and explains in detail the survival and strategic layout of major car companies. We will continue to track the key players, and this article focuses on the considerations and implications behind the traditional giant Toyota's quest to build wholly owned factories in China.

The three major Japanese luxury brands: Lexus (owned by Toyota), Infiniti (owned by Nissan), and Acura (owned by Honda).

Acura has completely withdrawn from the Chinese market in January last year, Infiniti was revealed to be a large number of dealers in China closed their doors and withdrawn from the network, and Lexus, which has been in China for 19 years, has finally taken a step towards localization cautiously.

"I can't understand the logic of this (sole proprietorship), and the market space for second-tier luxury will be extremely compressed in the next few years." After the news of Lexus's plan to build a wholly-owned factory in Shanghai, a former head of the second-tier luxury brand business expressed his confusion to the "Deep Web", in his opinion, Lexus continues to use the previous form of full import, operating in the Chinese market with light assets, and maintaining a flexible position can better cope with competition.

In his opinion, the situation is similar to Lexus and Korea's Hyundai Group (third in global sales in 2023) and Stellantis Group (fourth in global sales in 2023). "The world is booming, and China's growth is difficult." Moreover, Lexus's sales in Europe and the United States are still growing steadily, and it is completely possible to maintain net imports in China and increase investment in high-growth regions.

It seems like a path, but in the era of electrification, neither Toyota nor Lexus can give up the Chinese market.

First, Toyota will not be willing to be a regional car company, not a global car company.

Although Toyota is still the world's largest and most profitable car company in terms of sales, it did not meet its annual production and sales target last year, and poor sales in China were one of the main reasons for the failure. The slow transition to electrification hangs over Toyota like a sharp blade. This year, Toyota will invest 1.7 trillion yen (about 76.7 billion yuan) in electric vehicles and artificial intelligence technology to "compete".

Lexus is the "vanguard" of Toyota's electrification transformation. In Toyota's plan, Lexus will eventually transform into a pure electric brand, and it is expected that by 2030, all its models will be provided with pure electric versions, and 100% pure electric models will be sold in China, North America, and Europe, with a global sales target of 1 million units. By 2035, it will completely transform into a pure electric brand.

Second, if Toyota wants to make up for electrification, the best teacher is the Chinese market.

"China's new energy R&D, market, and supply chain are the world's top streams, and Volkswagen and Audi are using their domestic R&D strength to develop models, in order not to lose the Chinese market, but also to accumulate strength for the international market." A person from a joint venture car company told the "Deep Web" that "Shanghai is the top stream of new energy in China", and striving for Lexus to build a wholly-owned electric vehicle factory in Shanghai has no economic significance for Toyota in the short term, but it is an important strategy.

Toyota can't give up China, but does China still need Lexus?

Lexus is difficult to have Tesla's "treatment"

"Lexus isn't much of a catfish." A supplier of a foreign-funded car company told "Deep Web" that Lexus's sole proprietorship is "not a big problem", but policy support may not surpass that of other independent brands.

A few days ago, according to Bloomberg, citing a number of people familiar with the matter, Toyota is negotiating with relevant departments to invest in the construction of a 100% wholly-owned Lexus plant in Shanghai, similar to Tesla's Chinese factory.

According to people familiar with the matter, Toyota hopes to get similar treatment to Tesla China, including tax incentives, policy support, land supply and 100% sole proprietorship. Another person familiar with the matter said that the talks are far from being finalized and that there may be changes.

"Deep Web" asked Toyota China for confirmation on this matter, and Toyota China replied: It will not respond to Internet rumors. Compared to Lexus's clear response four years ago: "There are no plans to localize production in China." "Most people in the industry believe that the response has been loosened.

Tencent Auto's "High Beam" learned from people close to the Shanghai Municipal Government that the two sides had begun to contact a few months ago, and the Shanghai Municipal Commission of Economy and Information Technology was responsible for negotiating cooperation with Toyota, but the implementation has not yet been finalized.

When Tesla finalized its decision to enter China's domestic production in 2019, it was called a "catfish" that was about to stir up China's new energy market. The business leader of a leading electric vehicle company joked, "Sooner or later, the wolf (Tesla) will come." When the wolf comes, the sheep can climb fast. "Tesla can also reduce costs and expand its market size by building a factory in Shanghai.

At that time, Tesla's Shanghai factory received multiple preferential treatment from the Shanghai Municipal Government, including: 1. 860,000 square meters of land for about 980 million yuan for the construction of the factory, 2. About 590 million yuan of subsidies provided by the Shanghai government, 3. 4 billion yuan of low-interest loans with an annual interest rate of 3.9% provided by Chinese financial institutions; 4.15% corporate income tax rate (the policy expires in 2023 and reverts to the standard corporate income tax rate of 25% in 2024).

Compared with the "catfish effect", the introduction of Tesla in Shanghai hopes to drive the upstream and downstream supply chain of China's electric vehicles and the overall industrial development. Musk has also made a commitment to this: 1. All parts must be 100% localized within three years, that is, every part on every domestic Tesla must come from a local factory in China; 2. Invest 14.08 billion yuan in the Shanghai factory in the next five years, 3. From 2023 onwards, 2.23 billion yuan of tax will be paid annually, and if it cannot be completed, the corresponding land must be returned.

In 2004, after Lexus officially entered China, as sales continued to rise, there was also news of localization. During this period, Toyota's two partners in China, FAW and GAC, also continued to strive to introduce the Lexus brand, but Lexus has never made up its mind to start production in China.

Today, unlike in the past, the Lexus ES, which used to have to increase the price to pick up the car, has a loan naked car price as low as 190,000 in some areas. Under the pressure of the price war that continues to heat up, Lexus has to "exchange price for volume", coupled with the slow transition to electrification, and now, Lexus needs the Chinese market even more.

Toyota crisis: BYD is becoming the "new Toyota"

In fiscal 2023, Toyota became the first Japan company to exceed 5 trillion yen (about 225.6 billion yuan) in annual operating profit for the first time, but Toyota was not happy.

Toyota CEO Tsuneji Sato said that in fiscal 2024, Toyota's annual profit is expected to fall by nearly 20%, and operating profit will fall by 19.7% to 4.3 trillion yen. Combined with the earnings and earnings conference calls, this forecast may have a negative impact on future investment plans, fierce competition with Chinese automakers, and violations by its subsidiaries.

Lean manufacturing is a golden quality business card for Toyota to break into the world stage from a township enterprise, surpassing Volkswagen of Germany and Ford of United States and becoming the world's largest car company. But in recent years, Toyota has been embroiled in counterfeiting scandals.

On June 3, Japan's Ministry of Land, Infrastructure, Transport and Tourism reported certification fraud in 38 models of Toyota, Mazda, Yamaha Motor, Honda and Suzuki. On the same day, Toyota Chairman Akio Toyoda bowed and apologized at a press conference held in Tokyo. On June 4, according to the Japan Economic News, the Ministry of Land, Infrastructure, Transport and Tourism of Japan conducted a surprise inspection of Toyota's headquarters.

On June 11, Japan's Ministry of Land, Infrastructure, Transport and Tourism concluded after an investigation that Toyota's six cases of certification violations were found to have violated not only Japan's national standards, but also United Nations standards (adopted in Europe and other regions). Japan and the United Nations have the same passenger car standards, so the violation is highly likely to prevent Toyota from mass production in Europe and elsewhere.

Including this certification fraud, Toyota has been exposed to four fraud/violation incidents in the past three years.

In 2022, Hino Motors, a subsidiary of Toyota Truck Manufacturing, falsified engine emission data; In December 2023, Daihatsu Motors, a subsidiary of Toyota's small car subsidiary, committed a safety test violation; In January 2024, shipments of 10 models of Toyota were suspended due to irregularities in diesel engines produced by its Toyota Autonomous Loom.

At the same time, BYD is gradually becoming the "new Toyota" overseas.

According to Nikkei Chinese, Suraphorn, vice chairman of the automotive industry of the Federation of Thailand Industry (FTI), said, "(BYD) is like Toyota before."

The Thailand car market was dominated by European and American automakers such as United States Ford Motor around 1960, and later Toyota and Nissan gained more support for their cost-effectiveness and quality.

"At that time, consumers switched to Japan cars because they were cheap and the quality was guaranteed. Today, Chinese BEVs such as BYD are also very attractive in terms of quality and price, so the same phenomenon is happening at that time. Sulabhorn said.

Just as Japanese cars once swept the Thailand and even Southeast Asian markets instead of American cars, now Chinese new energy car companies such as BYD are gradually eating up the share of Japanese cars in these markets. According to Nikkei Chinese data, the market share of Chinese cars in Thailand in 2023 will be 11%, five times that of 2019, while the market share of Japanese cars will drop from 90% in 2019 to 78% in 2023.

In the era of electric smart cars, Toyota needs to find a new fulcrum if it wants to continue to sit firmly in the position of the world's largest car company. At present, Toyota's strategy is to invest a lot of resources to make up for electrification and intelligent technology, and at the same time cooperate with Chinese companies to complete the transformation as soon as possible.

Toyota plans to invest 1.7 trillion yen (about 76.7 billion yuan) in electric vehicles and artificial intelligence technology in the new fiscal year, and hopes to increase annual sales of electric vehicles to 1.5 million units by 2026.

In addition to increasing R&D of integrated casting technology and solid-state battery technology, Toyota has also cooperated with Huawei and BYD. Toyota's global model intelligent driving solution will adopt the "Toyota + Huawei + Momenta" tripartite joint solution model. According to financial reports, Toyota will also adopt BYD's super hybrid technology in China.

Volkswagen, which is transforming faster than Toyota, has not yet completed the "elephant turn"

Compared with Toyota, which has hesitated in its strategic direction and has been unable to make up its mind to electrify the transformation, the Volkswagen Group, the world's second-largest car sales company, can be said to be the traditional car company with the fastest transformation.

"Volkswagen turned around the fastest, using domestic strength to develop models, and now there are five or six models handed over to SAIC for development." A SAIC employee told "Deep Web" that compared with the new domestic forces, Volkswagen looks "half a beat slower" because the domestic development is too fast, "beyond the speed of their decision-making changes." ”

The Volkswagen Group's rapid transformation is thanks to former CEO Herbert Diess. In 2018, Diess bluntly said at Volkswagen's headquarters in Germany "Wolfsburg", "Volkswagen will be a disruptor, not a subvert." And reaffirmed the strategic goal of "making Volkswagen the No. 1 in e-mobility." In 2021, Diess even shouted at Musk on Twitter to take away part of Tesla's market share.

According to Clean Technica data, in 2023, Volkswagen Group will have the largest market share of new energy vehicles in Europe, reaching 21.2%, and Tesla will rank third, reaching 12.1%.

However, from a global perspective, Volkswagen and Audi's share is only 5.38%, while BYD and Tesla are as high as 21.01% and 13.21%.

"If the Chinese market fails, then Volkswagen is likely to degenerate from a global market company to a regional car company in Europe and the United States." A former Volkswagen Anhui employee told Deep Web that because the Chinese market accounts for 33% of Volkswagen Group's global sales, it is the largest single market for Volkswagen in the world, "This proportion is very heavy." ”

Volkswagen's eagerness to complete the transition to electrification as soon as possible is perfectly reflected in the speed at which it spends money.

At the earnings communication meeting in March this year, Volkswagen updated its new five-year transformation investment plan for 2025-2029, totaling 170 billion euros, or about 1.337 trillion yuan, accounting for 12% of Volkswagen's business revenue.

Volkswagen Group CEO Blume listed some of the uses of funds: 15 billion euros will be used to improve the software and hardware competitiveness of traditional fuel vehicle platforms; Upgrading the electrification platform MEB will also cost 15 billion euros; Another 15 billion euros will be used for battery strategy, including but not limited to battery factories and battery materials R&D and construction; Another 15 billion euros will be used to diversify the risk of failure in the Chinese market – to tap the growth potential of other markets, especially in the United States and parts of India.

"It's very difficult to completely break down an old R&D structure." The above-mentioned Volkswagen Anhui employee told "Deep Web" that in the process of work, he found that there would be a phenomenon of "putting new things into the old process".

It is not easy for an elephant to turn around, and it takes more time than a light emerging company, but now the new energy vehicle race is more than strategy and speed. At this stage, Toyota should perhaps learn more from the experience and lessons learned from Volkswagen's transformation than learning from Tesla.

View original image 84K

• 

•