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Introduction

From being a mentor in its early days to becoming a companion on the journey of overtaking, Toyota's relationship with China continues to deepen, embodying the company's long-term vision and people-centric core values.

"Where there is a way, there is a Toyota."

Many people's first impression of Toyota as an automotive brand stems from this slogan.

This phrase was penned by Yagi Jun and Nonaka Yoshisuke from the Japanese advertising agency Dentsu. Legend has it that after receiving a request from Toyota to create an impressive advertising slogan that resonates with Chinese culture, the two spent seven days racking their brains, drafting and discarding over thirty versions before finally striking gold.

Just as they were feeling discouraged, Yagi Jun happened to flip through a Chinese idiom dictionary and came across the phrase "When a boat reaches the bridge, it will naturally straighten out; when a car reaches the mountain, there will surely be a path." Inspired by this, they crafted the classic slogan, blending the essence of traditional Chinese culture with the strength of modern Japanese automotive products.

In the spring of 1982, a Toyota billboard stood tall by the road leading to Beijing Capital International Airport, featuring a deep red backdrop that showcased Toyota's flagship vehicles planned for China, including 17-seat buses, 4-seat trucks, and the renowned sixth-generation Crown sedan. At the top, the words "...where there is a way, there is a Toyota" stood proud.

But Toyota's connection with China goes beyond this slogan.

As early as 1964, at the Canton Fair, Toyota showcased its most powerful product at the time—the high-end version of the second-generation Crown sedan, the CROWN 8. Today, Toyota's official relationship with China marks its 60th anniversary.

As the Confucian classic Analects of Confucius states, "At sixty, one hears without offense," signifying a lifetime of refinement and the ability to accept both praise and criticism with equanimity. Similarly, six decades of refinement and precipitation have honed Toyota's character, enabling it to maintain a peaceful and tolerant mind, respect diverse viewpoints, and achieve harmonious coexistence.

As Toyota celebrates its 60th year in China amidst a dramatic transformation in the Chinese automotive industry, with local brands leapfrogging in new energy vehicles and intensifying competition, the global automotive scales have once again tipped towards the East. Can Toyota stand out amidst the struggling joint venture landscape?

"By practicing long-term values and adhering to a multi-path technology strategy," Toyota presents its answer. The essence of "sixty and beyond reproach" lies not in one's attitude towards the outside world but in one's commitment to oneself. As the automotive industry undergoes transformation, Toyota has already charted its next course.

"The relationship between Toyota and China is deeper than you think"

"What is the future of Japanese cars in China?"

This question echoes among potential car buyers concerned about manufacturers potentially exiting the Chinese market and the lack of after-sales guarantees; suppliers anxious about potential reductions in orders from automotive clients; and automotive industry friends, all of whom are intertwined in the automotive supply chain.

These concerns are not unfounded, as data speaks volumes.

In August 2024, the decline of Japanese cars in the Chinese market persisted, with new car sales dropping 25.9% year-on-year to 238,700 units. Toyota, with 152,100 units sold, propped up a significant portion of this figure. For the first eight months of the year, Japanese car sales totaled 1,926,900 units, down 15.3% year-on-year, with market share slipping from 17.0% in 2023 to 14.3%.

However, this is not the first time Japanese cars have faced a share decline in China. Both the "golden power" offensive of German cars and the 2011 earthquake had previously dealt heavy blows to Japanese automakers, yet they ultimately rebounded. So, can they stage a comeback this time around? The answer lies in tracing the root cause.

"The connection between Japanese cars, especially Toyota, and China is deeper than most people realize," Mr. Jia, sitting across from me at the tea table, replied, recounting the story of how the Canton Fair sparked Toyota's relationship with China.

Chart | Terminal Sales of Passenger Vehicles by Brand in China, August 2024

Legend has it that after the unveiling of the Toyota CROWN 8 at the Canton Fair, a mysterious customer placed an order for ten vehicles at once, sparking a demonstration effect that led to 60 CROWN 8 orders throughout the year.

Since then, Toyota used the CROWN 8 as a foot in the door to the Chinese market, followed by the Hiace H20 and H40 dual-purpose vehicles in the 1970s, the LC60 "Land Cruiser" in the 1980s, and eventually, Toyota's foray into the personal consumer market, solidifying Japanese cars' presence in China.

"If you only focus on Toyota bringing its vehicles to China, you're missing the depth of this global automaker's influence in the country," said Mr. Jia, pouring tea into three cups despite our being just two people. "This cup represents vehicle products, the second cup represents maintenance and support systems, and the third cup represents manufacturing standards."

In 1978, exchanges between FAW and Toyota became frequent. In June, an FAW delegation visited Toyota's production lines, and in November, a team of Toyota lean production engineers, including Daisuke Onishi and Nanba Hachiro, conducted a "factory diagnosis" of FAW, proposing groundbreaking factory transformation plans. Even before the establishment of the FAW-Toyota joint venture, the two parties had already embarked on a cooperation that went beyond a single vehicle model, imparting Toyota's invaluable lean production philosophy.

The 1980s and 1990s marked a crucial period for Toyota's assistance in breaking ground for China's automotive industry. Starting in 1980, Toyota established maintenance training centers in Beijing and Guangzhou to cultivate automotive maintenance talents. In 1984 and 1988, it transferred production lines to Tianjin Automobile and signed technology licensing agreements with Jinbei Automobile, respectively. In the 1990s, Toyota built a support system in Tianjin, establishing a series of component companies to lay the foundation for joint venture vehicle production.

"Even as recently as 2015, many independent brands were still reverse-engineering platforms from previous generations of Camrys, RAV4s, and Corollas, as well as Honda and Hyundai models. The assistance provided by Toyota in the 1980s and 1990s in terms of manufacturing standards and maintenance systems was instrumental in the nascent development of China's automotive industry," Mr. Jia lamented. "This goes far beyond the addition or subtraction of a few features or millimeters of steel thickness."

So, as China's automotive industry shifts gears and focuses on electrification and intelligence, do we still need Toyota? Will China and Toyota drift apart?

"Not leaving, cannot leave"

"Foreign enterprises are fleeing China," some say, intentionally or unintentionally painting a bleak picture.

As Japanese cars' market share in China declines, and even Toyota cannot escape year-on-year declines in some months, there are whispers that "Toyota is doing well globally, so it can afford to neglect China, with North America as its profit source and Japan as its base, and Southeast Asia as a secondary market."

Yet, Toyota chooses to disprove these notions through action.

"I don't believe that China, as a BEV development hub, is an island. I believe we can create a shared future," declared Toyota CTO Hiroki Nakashima during the Beijing Auto Show, his words resonating with conviction.

Amidst the general disorientation of joint ventures in 2022-2024, Toyota deepened its investments in China.

For instance, it established BTET with BYD to accelerate the localization of products and in-car technology. At this year's auto show, Toyota announced a renewed partnership with Tencent, focusing on AI big models, cloud computing, digital ecosystems, and more. Toyota's new R&D center in Jiading, dedicated to intelligence and new energy technologies, opened its doors, while its R&D center in Changshu underwent renovations.

"To produce quality products, TMEC has been renamed IEM and is committed to electrification," said Toyota China Chairman Tatsuo Ueda. "IEM is tailored to the Chinese market, emphasizing intelligence and electrification, and synergizing with our new R&D building in Jiading, Shanghai."

Compared to the previous Toyota R&D Center in Changshu (TMEC), IEM places greater emphasis on the Chinese market, focusing on intelligence and electrification, while collaborating with the new R&D building in Jiading.

"Toyota will not leave China or reduce its investments here. Besides contributing over a million vehicle sales annually, China boasts the strongest automotive supporting system and the most fertile ground for new energy and intelligent vehicles," Mr. Jia analyzed. "Furthermore, Toyota's new energy strategy and the characteristics of the Chinese market share fundamental commonalities."

China is a diverse and vast market, and Toyota pursues a multi-path technology strategy. While Tesla and new-energy vehicle startups target avant-garde consumers, establishing new directions in electrification and intelligence, the broader mainstream audience requires a more gradual transition towards intelligent electric vehicles. This is where domestic automakers like BYD, Geely, Chery, Changan, and Great Wall, as well as international players like Toyota, Volkswagen, Mercedes-Benz, and BMW, must continue to steadily advance.

Automobiles are not consumer electronics, and the notion that "smart electric vehicles will replace traditional gasoline vehicles, just as smartphones replaced Nokia feature phones" is a misconception. The transition in mainstream consumer habits, particularly for large-ticket items like automobiles that impact personal safety and rely on supporting infrastructure, is a gradual process.

China's automotive transformation also necessitates the support of mainstream automakers like Toyota from a different dimension.

As a synonym for stability in the automotive industry, Toyota approaches change with its unique perspective, preferring to address the root causes rather than superficial symptoms.

Regarding electrification, Toyota pursues "energy conservation and environmental protection throughout the entire lifecycle of automotive products," calculating carbon emissions from the power generation source rather than solely focusing on terminal energy consumption indicators. As for intelligence, Toyota believes that cars should "become good partners for human drivers" rather than completely replacing them.

While this strategy may lack the flashy tech appeal and sense of leadership, it excels in addressing the shortcomings of new technologies—safety and reliability.

What are the Achilles' heels of new energy vehicles? They must mitigate the risk of spontaneous combustion. According to statistics from the National Fire Protection Administration, the fire incident rate of new energy vehicles has reached 0.007179%, higher than that of gasoline vehicles at 0.003692%. They must also address range anxiety, particularly in areas with inadequate charging infrastructure.

What about the weaknesses of smart vehicles? They must tackle safety hazards and enhance the reliability of autonomous driving modes to reduce collision risks.

Thus, the "slow and steady" approach of "repeated pre-delivery verification" and the perceived inability to keep pace with the fast-paced internet era, through meticulous product refinement, are actually invaluable in mitigating the side effects of technological transitions.

Someone may ask, why is Toyota the one to play the role of "bridging the gaps"? The answer lies in Toyota's origins and corporate culture.

Long-termism, a Friend of Time

Thucydides said, "History repeats itself."

China's automotive market has witnessed fluctuations in market share among different nationalities over the past two decades. Observing the market share of different nationalities across various periods reveals that "there are no permanent winners."

In 2002, German cars dominated the market with a 40.39% share, while Chinese brands accounted for just 24.93%, and Toyota, through FAW-Toyota, held only 15.24% of the Japanese share. As more automakers entered the fray, German cars' share dropped to 32.20% in 2003, while Japanese cars climbed to 20.53%.

In 2005, Japanese cars successfully climbed to 25.08%, while German cars fell to 17.78%. In 2006, GAC Toyota launched its flagship model, the Camry, further boosting its momentum. By 2008, Japanese cars peaked at 30.79% market share.

However, in 2012, Japanese cars' share dipped to 19.17%, while German cars regained the lead at 21.70%. Nevertheless, Japanese cars gradually recovered due to their competitive pricing and low failure rates, once again rivaling German cars and reclaiming over 20% market share from 2018 onwards. Meanwhile, Chinese brands have grown steadily, achieving significant leaps after 2020.

Due to cyclical patterns, those who fail to plan for the long term can only aim for short-term victories.

For a giant like Toyota, mere three- to five-year plans are insufficient. Many mockingly say, "Toyota is already planning its product and technology roadmap for 2026-2030, but by then, the game will be over." However, if solid-state batteries and advanced AI technologies enter the market during this period, who can afford to ignore Toyota's might?

"Toyota's annual global sales of over ten million vehicles are inseparable from its multi-path strategy," Mr. Jia aptly observed. "By pursuing a multi-path technology approach, encompassing gasoline, hybrid (HEV), plug-in hybrid (PHEV), battery electric (BEV), and fuel cell electric vehicles (FCEV), Toyota satisfies diverse consumer preferences and regional conditions worldwide."

Indeed, with nearly half of Volkswagen's market in China and General Motors and Ford only retaining operations in North America and China, Toyota and Hyundai are almost the only remaining truly "global automakers." To satisfy the demands of diverse markets ranging from Northern Europe to ASEAN and Australia, and from aggressive electric vehicle enthusiasts like China to conservative gasoline-powered vehicle lovers like the United States, Toyota must pursue a parallel development strategy in gasoline vehicles, HEVs, PHEVs, BEVs, and FCEVs.

In 2023, Toyota sold 11.233 million vehicles globally, with HEV models accounting for 30% of global sales. While these products are not as popular in the Chinese market, they are highly sought after in North America and ASEAN. To address the Chinese market, Toyota's cooperation with BYD in the bZ3 BEV has quietly stabilized at a monthly sales volume of 5,000 units – a preliminary achievement of Toyota's strategy of pursuing multiple goals simultaneously and a manifestation of its long-term vision in practice.

'Long-termism, being a friend of time,' is deeply ingrained in Toyota's DNA.

Steady progress, conservatism, and long-termism easily evoke associations with Toyota's stable 'annual ring management' philosophy.

'Annual ring management' originated from Hiroshi Tsukagoshi, recipient of the Japan Science and Technology Agency Minister's Award and the Best Manager Award. Although the Ina Food Industries he led was a small enterprise, just 1/1500th the size of Toyota Motor Corporation, it achieved 48 consecutive years of revenue growth, making him a mentor to giants like Toyota.

'A company is different from a living organism. Sustainable development is the premise and ideal of business operations,' said Tsukagoshi. 'Simply put, it's good enough if we don't do worse than the previous year... Most people in the current economic sector advocate for rapid growth. This is probably because they haven't figured out the fundamental purpose of a company's existence.'

This is why, after becoming president in 2009, Akio Toyoda aimed for sustainable growth, embodying the philosophy of long-termism.

'Next, we will strengthen our PHEV business,' responded Hiroki Nakajima to Auto Society reporters during the Beijing Auto Show, noting that Toyota's solid-state battery development is progressing smoothly towards mass production in 2027. Additionally, the company is researching and developing prismatic and bipolar batteries. By combining battery technologies to meet customer needs, Toyota is promoting multi-path development in batteries.

Clearly, adhering to long-termism, Toyota is not resorting to 'price competition' to adapt to the Chinese market. Instead, it is more determined to 'compete on technology,' aiming for technology paths more suited to long-term visions.

People-centered, with the balance tipping eastward

One of the most important automotive industry chronicles of the 1990s is 'The Car Wars: How the Big Three Will Race to Dominate the 21st Century' by automotive finance analyst Maryann Keller.

In Chapter 5, 'Whose Century?', Keller writes, 'Every company has a corporate culture distinct from the industry or societal culture as a whole. It is a product of its environment and traditions. A company's personality often reflects the local roots of its corporate culture.'

Toyota is not only the world's top-selling automaker but also one of the most distinctive, particularly known for its stability and long-termism, which embody Eastern cultural characteristics.

When the automobile debuted in Germany 138 years ago and underwent explosive growth in the 1930s due to Ford's industrial revolution, it seemed that the West held the absolute discourse in the automotive industry. Toyota's rise, however, indicates that the East's weight on the scale is increasing.

Delving deeper into philosophical thought, we find that beyond market potential and mobility visions, China holds profound significance for Toyota, rooted in the formation of Toyota's TNGA philosophy and its decision to pause expansion and prioritize stability.

Tracing the historical footsteps of Hiroshi Tsukagoshi and Akio Toyoda's thoughts, we discover that some of the earliest relevant quotes in ancient texts originate from China.

Regarding sustainable development, Mencius wrote in the Lianghuiwang Chapter of the Mencius, 'If farming seasons are not violated, there will be more grain than can be eaten. If fine-mesh nets are not dragged through pools, there will be more fish and turtles than can be eaten. If axes are taken into the mountains at the proper time, there will be more timber than can be used. When there is more grain than can be eaten, more fish and turtles than can be eaten, and more timber than can be used, the people will have no regrets about nourishing the living and burying the dead. When the people have no regrets about nourishing the living and burying the dead, then the kingly way begins.' And Xunzi's 'Advancements Accumulate' in the Xunzi states, 'One cannot travel a thousand li without accumulating small steps; one cannot form a river or sea without accumulating small streams.' This clearly outlines the path forward.

TNGA, Toyota's New Global Architecture (named Fengchao in China), is crucial to Toyota's present and future. It is not only the essence of what sets Toyota apart from Volkswagen, General Motors, and Ford but also resonates with Chinese philosophical thought, imbued with the wisdom of the East.

TNGA's underlying principle is to enhance the interconnection, interaction, and collaboration of design, manufacturing, and other functions through an internal company system, maximizing resource utilization efficiency and work efficiency while optimizing product performance in all aspects. Essentially, it is the 2.0 version of lean production from the second industrial revolution. Even seemingly incompatible goals, such as powerful performance and fuel efficiency, can be achieved while maintaining a 'balanced and stable' core, with a strong push for youthful and sporty designs. But how does this relate to ancient Chinese thought?

There are two fundamental laws of the universe: the conservation of mass and energy, and the continuous increase in entropy. To suppress local entropy increases, energy must be consumed, and entropy in other regions must rise as a trade-off. Given limited resources, harmony between humans and the universe depends on cherishing resources and improving utilization rates to achieve the 'harmony between man and nature.' This is reflected in Confucius's 'Of all things in nature, man is the most noble. The great man is in harmony with heaven and earth in virtue' and Zhuangzi's 'Heaven and earth coexist with me, and all things are one with me.'

As global resources dwindle, the guiding principles of Western modern civilization, which have striven for maximum development, gradually expose their shortcomings in adaptability. Oswald Spengler, in 'The Decline of the West,' accused: 'A century that values only extensive effects and excludes great art and metaphysical production is a declining era.' Conversely, Eastern philosophy, which leaves room for everything and pursues the middle way, can better guide the future of the planet.

Thus, 'Which executes Eastern philosophical thought more thoroughly, Toyota or Chinese automakers?' becomes a question we must ask ourselves.

Indeed, China's automotive sector, represented by the top five domestic automakers and leading new energy vehicle manufacturers, has gained significant advantages in technological influence and brand image within the domestic market. But where will the market head in five, ten, or twenty years? How will new technologies like solid-state batteries and end-to-end autonomous driving disrupt the landscape, presenting both opportunities and challenges for Chinese brands and joint ventures like Toyota? It's difficult to encapsulate in a single statement.

Throughout Toyota's nearly century-long history, it has faced countless instances of underestimation and disdain, but these ultimately served as stepping stones for its explosive growth.

According to 'Toyota: Growth and Global Strategy,' in the 1980s, Toyota lagged behind Honda and Nissan in establishing factories in the United States, leading to criticism that Toyota was a 'rural company lacking global awareness.' However, then-Toyota President Eiji Toyoda, also the founder of Toyota's high-growth era, responded, 'We're waiting for the right time.' Four decades later, Toyota has surpassed Ford to become the second-largest automaker in the US market.

Similarly, China and its automotive industry have experienced numerous ups and downs, and can naturally draw many lessons and inspirations from Toyota's story.

Ultimately, as Akio Toyoda said, 'When a person or a company cannot move forward, it symbolizes the end.' Toyota, with its relentless pursuit of progress and adherence to long-termism, continues to be a friend of time amidst the turmoil of transformation. How should we evaluate such a company?

Perhaps the true appraisal will be left to the pen of history.