Tue, Dec 16, 2025 page7

• How Toyota bucked the trend in China

  • By Juliana Liu / Bloomberg Opinion
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  Spiraling diplomatic ties between Japan and China are sure to affect some businesses, but one company is poised to stand its ground: Toyota Motor Corp. After all, the world’s biggest automaker has already survived a much bigger challenge — a tectonic shift in China’s auto industry that devastated most foreign players.

  Even though shipments last year were 14 percent lower than the 2022 peak (1), that is nowhere nearly as devastating as its global peers. Sales at Ford Motor Co were more than 80 percent lower than its 2016 all-time high. Revenue at Volkswagen AG, whose ubiquitous boxy Santanas symbolized private car ownership during China’s go-go years, was down about one-third last year from its record (2).

  The turning point for the domestic auto sector came in about 2020, two decades after a mechanical engineer named Wan Gang (萬鋼) returned to China following years working for Audi in Germany. He promised the authorities that while foreign automakers dominated gasoline vehicles, Beijing had a chance to pull ahead by betting on electrification.

  Eager to reduce its dependence on imported oil, officials put him in charge of a state-led effort to develop the market for clean-energy vehicles.

  Wan’s words would prove prophetic. In 2021, electrified vehicles accounted for just 18 percent of sales, according to consultancy Alix Partners. Just three years later, that proportion jumped to 50 percent. By 2030, it is expected to rise to 81 percent. The shift from internal combustion to clean energy engines caught most foreign players by surprise.

  Toyota was an exception. That is in large part due to its decision to start making hybrids back in 1997 with the launch of the first-generation Prius in Japan. Sales of versions of the Corolla, Levin, Camry and Highlander have helped the automaker weather the transition in China, its second-largest market by volume.

  From 2023, it also began offering heavy discounts on some models.

  Julie Boote, an automotive analyst at London-based research firm Pelham Smithers Associates, said the strategy boosted shipments, but took a toll on its bottom line.

  During the 2021 fiscal year, profits from Toyota’s joint ventures, as well as sales of its vehicles imported from Japan, stood at ￥525 billion (US$3.4 billion), she said. Three years later, the figure nearly halved to ￥290 billion.

  That is still head and shoulders better than even its Japanese peers. The combined share of China’s passenger car market dropped from a peak of 26 percent in 2020 to 14 percent last year, Bloomberg Intelligence auto analyst Tatsuo Yoshida said.

  Honda Motor Co and Nissan Motor Co are struggling, while Suzuki Motor Corp and Mitsubishi Motors Corp have essentially withdrawn.

  As for Toyota, another strategic pivot is emerging. Although it has always worked with local affiliates FAW Group Co (中國一汽集團) and Guangzhou Automobile Group Co (廣州汽車集團) to jointly manufacture, as legally required, the dynamic is changing.

  Previously, Toyota was the senior partner transferring its technology. Now, it is starting to localize like never before by integrating and showcasing Chinese technology.

  The result? The March launch of the fully electric bZ3x sport utility vehicle priced at 109,800 yuan (US$15,565). That puts it in the same league as cut-price, high-tech vehicles from BYD Co (比亞迪). It is also about US$6,000 cheaper than one of its predecessors, the Izoa, launched around 2020 as one of Toyota’s first dedicated electric vehicles for China.

  At this price, the bZ3x has been popular, selling more than 50,000 units since its launch to October.

  However, there is an inherent risk in the strategy. An increasing level of localization might inevitably blur the lines between brands. If foreign automakers are leaning so heavily into Chinese technology, why would buyers not just purchase fully homegrown models in the first place? Anyone pursuing this path needs to consider the longer-term consequences.

  In the clearest sign yet of Toyota’s ambition in China, it would be following in Tesla Inc’s footsteps by opening a fully owned manufacturing facility. Located outside Shanghai, it would assemble Lexus vehicles starting in 2027, and is expected to produce about 100,000 units at first.

  Toyota’s turnaround, without a massive restructuring or GM-style US$5 billion write-down, seems to be working.

  Boote said that profits from the China operations would grow 14 percent compared with last year — and, despite continued rumblings between Beijing and Tokyo over Taiwan, there have been no calls for any boycotts of Japanese products.

  It is a different picture from 2012, when sales of Japanese vehicles plunged and did not recover for months as a territorial dispute over islands in the East China Sea sparked sometimes violent protests across China. Even though the current situation might deteriorate further, the response from Beijing appears much more measured. Toyota should be able to pull through.

  (1) Calculations are based on retail shipments recorded by the China Automotive Technology and Research Center. They reflect sales of Toyota-branded cars, excluding its luxury division Lexus.

  (2) Calculations are based on retail shipments recorded by the China Automotive Technology and Research Center. They reflect sales of Volkswagen-branded cars, excluding luxury brands such as Audi and Porsche.

  Juliana Liu is a columnist for Bloomberg Opinion’s Asia team, covering corporate strategy and management in the region. She was previously CNN’s senior business editor for Asia, and a correspondent at BBC News and Reuters. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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