Toyota pledges to boost local supply chains for electric vehicles in China

Toyota’s new chief executive has warned of “a sense of crisis” surrounding its business in China, pledging to boost local supply chains for electric vehicles as technological and geopolitical challenges intensify.

In a group interview on Friday, Koji Sato, who took the helm of Toyota earlier this month, pledged “bold” efforts to push for further localisation as the Japanese group tried to keep pace with a rapid technological shift in the world’s largest car market. “I do feel an underlying sense of crisis that we need to accelerate our efforts to do business in this market,” he said.

In recent months, Japanese carmakers have posted the sharpest sales declines in China among foreign brands owing to the slow rollout of battery-powered vehicles. Toyota’s own 2022 vehicle sales in China fell for the first time in a decade.

Toyota unveiled two models from its electric bZ series at last week’s Shanghai motor show. But Sato said the event underscored the scale of the advances China has made in electric vehicles as well as autonomous driving technology.

“It is important to raise the speed from development to production of battery EVs in China,” Sato said.

His comments come as Japanese companies confront rising geopolitical risks from tensions between Beijing and Washington. A number of multinational groups are reducing their exposure to China and building up in other countries, as part of a “China plus one” production strategy. Foreign manufacturers also aim to make parts and cars inside China exclusively for use within the country.

For foreign carmakers, decoupling has been harder since they all have joint ventures with local Chinese groups and companies have continued to invest in the market due to its sheer size. Volkswagen last week announced it would spend €1bn on setting up a new innovation centre in China.

Toyota signed a deal with Chinese battery group CATL in 2019 to develop batteries for electrified vehicles. It also partnered with BYD, China’s largest electric and hybrid carmaker, on the sedan bZ3, its second mass-produced electric model in China, expected to launch this year.

Toyota stressed it had always produced cars close to their consumers and many of its existing models in China were locally produced. Still, Sato said “a compact supply chain” with lower logistic costs was essential to boost productivity in electric vehicles.

Toyota will pursue a similarly aggressive localisation strategy for electric vehicles in the US, where the Biden administration is offering generous tax credits to bring supply chains and manufacturing to the country, he added.

“In areas where there is an acceleration in the shift towards battery EVs, like China and the US, we need to be bold with local production,” Sato said.