Update: Market Chatter: Toyota Targets 2.5 Million Annual Vehicle Production in China by 2030

Toyota Motor Corp shared ambitious production goals for China while maintaining a cautious stance towards the U.S.

The Japanese automaker plans to produce at least 2.5 million vehicles annually in China by 2030.

Toyota aims to bring its sales and production operations closer together and give local executives more control over development, Reuters reports.

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This strategic shift marks a notable pivot for the automaker as it seeks to regain market share lost to local competitors like BYD.

Unlike other global automakers, including fellow Japanese brands scaling back in China, Toyota aims to boost its production capacity to as many as 3 million vehicles per year by the end of the decade.

Although Toyota has not set a formal target, the higher figure would represent a 63% increase from its record output of 1.84 million vehicles in China in 2022.

Reuters stated that Toyota has already begun notifying suppliers about the planned production ramp-up to secure its supply chain and signal its long-term commitment to the Chinese market.

The automaker aims to streamline its Chinese joint ventures by integrating sales and production operations for greater efficiency while shifting more development responsibility to local teams familiar with market preferences, particularly in electrified and connected vehicles.

Toyota’s struggles in China have been compounded by domestic EV makers, who have quickly launched affordable, tech-savvy models that appeal to Chinese consumers.

While Toyota has enhanced collaboration between its R&D center in Jiangsu and its local joint ventures, it still faces challenges as vehicles independently developed by its joint venture partners outperform those co-developed with Toyota.

Therefore, Toyota plans to consolidate production for each model at a single joint venture facility and offer the models at dealerships of both joint ventures.

Last week, China unveiled a new fiscal stimulus package committing 6 trillion yuan ($840 billion) to alleviate hidden debt burdens faced by local governments.

The broad financial initiative, scheduled for completion by the end of 2026, signals a major effort by Beijing to tackle rising economic challenges and boost growth in the face of global uncertainties.

Meanwhile, Toyota’s North American COO criticized U.S. policies that push rapid electric vehicle (EV) adoption and fail to reflect current consumer demand.

Jack Hollis, COO of Toyota North America, argued that EV sales should grow naturally without penalizing gas-powered vehicles, noting that government support for EVs has been a contentious topic in the recent U.S. presidential election, Bloomberg reports.

Hollis pointed out that the EPA and California emission regulations are “ahead of the consumer,” creating a mismatch with what buyers want.

In March, the EPA introduced stringent emissions limits to reduce carbon dioxide output to 85 grams per mile by 2032. These rules, endorsed by the Biden-Harris administration, faced criticism from President-elect Donald Trump throughout the campaign.

California’s regulations go even further, aiming to phase out all new gas-powered cars by 2035, a model many states have adopted. Hollis, who oversees Toyota’s U.S. sales, warned that such measures exacerbate affordability issues as EVs remain more expensive than traditional vehicles.

Previously, Toyota was among the last automakers to withdraw support for the Trump administration’s effort to prevent California from setting its emissions standards.

Toyota plans to introduce two American-made EVs by 2026, in addition to its existing all-electric models in the U.S., following a more gradual approach to the EV market shift.

Hollis mentioned that Toyota might reconsider the production balance between fully electric and hybrid batteries at its new North Carolina facility, slated to open next year.

The plant includes ten production lines for electric and plug-in models alongside four dedicated lines for hybrid batteries, reflecting Toyota’s incremental strategy in the evolving EV landscape.

Toyota’s second-quarter sales were 11.44 trillion yen ($76.29 billion), marking its first quarterly profit drop in two years. However, it topped analyst estimates of 11.41 trillion yen. Sales volumes declined 20%.

The company reported 2.3 million vehicle sales for the quarter, down from 2.41 million a year ago. Toyota also cut its full-year vehicle production target to 10.85 million from 10.95 million.

Price Action: TM stock traded higher by 1.19% to $174.08 at the last check on Monday.

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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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On Wednesday, Toyota Motor Corporation issued its fiscal second quarter results, posting a weaker-than-expected profit due to production halts and macroeconomic events. Its smaller domestic rival, Honda Motor Co. Ltd. reported a surprising decrease in operating profit that was dragged down by a significant sales drop in China.

Honda’s disappointing Q2 results reflect significant hit from unfavorable market conditions in China.

Honda reported that fiscal second quarter net profit contracted by 20% 494.68 billion yen, equivalent to $3.26 billion with operating profit dropping 15% to 257.9 billion yen.

For the fiscal year that will March 2025, Honda now expects an even bigger net profit drop, increasing its prior guidance of a 9.7% fall to a 14% drop. While it previously expected to sell 3.9 million units during the fiscal year, it now lowered its guidance to 3.8 million as first-half group car sales dropped 8% to 1.78 million. During the six months that ended on September 30th, revenue still grew 12% so despite falling short of estimates, Honda remains optimistic.

Toyota’s Fiscal Q2 Highlights

For the quarter that ended on September 30th, Toyota reported its operating income tumbled 20% to 1.16 trillion yen which amounts to $7.81 billion, coming short of Bloomberg’s estimate of 1.25 trillion yen. This was Toyota’s first profit decline in two years and it is owed to weaker sales in its main market, North America.

The world’s largest automaker by sales volume reported revenue of 11.44 trillion yen, topping LSEG’s consensus estimate of 11.41 trillion yen while net profit attributable to company more than halved compared to last year’s comparable quarter to 573.7 billion yen. Sales volume slipped to 2.3 million from 2023’s comparable quarter when it amounted to 2.42 million units.

One should note that sales were up against 2023’s record as Toyota benefited from pivoting towards hybrids over all-electric vehicles. Hybrid sales fell 35% YoY over the past six months, but Toyota still sold an impressive figure of 1.8 million units.

Toyota's Trimmed Guidance

Toyota lowered its prior sales forecast of 10.95 million units to 10.85 million. However, it reaffirmed its annual sales revenue guidance of 46.00 trillion yen and a net income of 3.57 trillion yen.

Overall, Toyota posted stable sales in a challenging macroenvironment. Despite surface-level weakness in unit sales and profitability, Toyota’s latest report shows a relatively stable performance.

Historically, Toyota has a good track record when it comes to growth, but the EV era that is in the making brought its fair share of challenges which will undoubtedly continue to test Toyota’s strength.

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This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.