Aspiring to Lead the Automotive Industry in China

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Amidst the pressure-induced merger of Honda and Nissan, the automotive industry turned its spotlight on Toyota.

As one of Japan's Big Three automakers, Toyota is renowned for its conservative approach. Even in the face of the accelerating transformation within the global automotive industry, its strategic shifts have been relatively gradual.

Consequently, Toyota has experienced relatively minor performance impacts over the past two years.

In fiscal year 2024 (April 1, 2023, to March 31, 2024, for Toyota), the company reported revenue of 45.1 trillion yen (approximately 2 trillion yuan) and net profit of 4.9 trillion yen (approximately 230 billion yuan), representing year-on-year growth rates of 21.4% and 10.7%, respectively.

In 2024 (calendar year), Toyota's performance also remained resilient.

From January to November, Toyota's global sales totaled 9.2539 million units, marking a mere 1.2% year-on-year decline.

In the dynamic Chinese automotive market, GAC Toyota, FAW Toyota, and Lexus are estimated to have sold approximately 1.718 million units in 2024, down from 1.908 million units in 2023, yet remaining above the warning threshold.

Toyota's robust global performance reaffirms the reliability of its "conservative" strategy. Its conservatism towards strategy, much like its commitment to product quality, may not be flashy but holds firm to its bottom line.

However, as 2025 approaches, insiders predict that the balance between internal combustion engine (ICE) vehicles and new energy vehicles (NEVs) will begin to tip. For Toyota, continuing to play a balancing role in the evolving automotive landscape could lead to a further decline in market share.

Therefore, 2025 marks a pivotal year for Toyota to change its approach.

This time, Toyota's choice to initiate changes in the Chinese market could potentially redefine the rules of the game in China's joint venture automotive sector.

Implementing Agile Tactics: Is Toyota Tightening Its Belt?

In late December 2024, news emerged that FAW Toyota's Beijing headquarters would relocate to the FAW Toyota Tianjin plant.

This move signifies the commencement of Toyota's production-sales integration strategy in the Chinese market.

Toyota is not alone in adopting the "move headquarters to the front line" strategy. A month prior, GAC Group also relocated its headquarters to Panyu Automobile City, with senior management emphasizing the importance of "decision-making closer to the action".

In essence, Toyota's production-sales integration strategy embodies agile tactics focused on cost reduction and efficiency enhancement—a trend increasingly adopted by major automakers.

Following the headquarters relocation, Toyota's reform strategy is poised to extend beyond these initial steps.

Judging from the experiences of major joint venture brands in 2024, the twin-car strategy may have outlived its usefulness. While Volkswagen still benefits from its "north-south twin-car strategy," Honda (with its north-south twin cars) and Nissan (with two generations coexisting) have largely lost market recognition.

Therefore, for Toyota, cost reduction and efficiency enhancement must permeate every level of its operations.

Models like Corolla and Levin, Camry and Asia Dragon, Highlander and Crown Land Cruiser are essentially the same, leading to unnecessary internal competition and friction within Toyota China.

Consolidation and transformation of these twin models have thus become an inevitable choice for Toyota.

As for how FAW Toyota and GAC Toyota will divide their responsibilities post-merger, past market performance offers a clear answer.

FAW Toyota specializes in mid-to-high-end models such as Prado, Coaster, Highlander, and Sienna, while GAC Toyota focuses on Toyota's electric models, Corolla, Fenglanda, and other family cars, catering to practical needs.

This segmentation, with North and South Toyota each targeting different market segments, could significantly enhance Toyota's operational efficiency in China.

Lexus Localization: A Turning Point for Toyota's Electrification

In the realm of ICE and strong hybrid vehicles, North and South Toyota aim to further bolster the market competitiveness and vitality of Toyota's traditional models through product line reorganization.

However, as the balance between ICE and NEV models shifts, increasing investment in NEV development has become a pressing issue for Toyota.

While the ICE product line undergoes reorganization, reports indicate that Toyota will establish a new battery electric vehicle (BEV) factory in Shanghai to produce Lexus electric models. Furthermore, the localized Lexus may adopt a sole proprietorship model, similar to Tesla.

It's worth noting that in 2024, Lexus sold approximately 180,000 units in China, mostly comprising ICE and strong hybrid models. Therefore, the new Lexus China BEV factory may not immediately boost Lexus sales in the short term.

Yet, from another perspective, Toyota seems to be utilizing the Lexus BEV factory as a testbed for the group's transition towards smart electrification.

Toyota's Intelligent Electric Vehicle Research and Development Base in China, IEM by TOYOTA, further underscores the company's ambition to make China the epicenter for smart electric vehicle research and development.

The rationale behind this is straightforward: With its geographical advantages, the Lexus BEV factory in China can swiftly address its intelligence-related shortcomings.

Currently, intelligent technology is the Achilles' heel of the conservative Toyota.

By collaborating with Chinese companies like Momenta and Huawei, Toyota aims to bolster the intelligence of Lexus and even its entire electric vehicle portfolio.

With enhanced product performance, Lexus can also adopt a flexible pricing strategy through localization, further expanding its sales in China.

Ultimately, as Toyota builds a more comprehensive product portfolio in China, it can leverage the country as a springboard for global expansion of its smart electric products. More concretely, Toyota's fundamental operational strategy in China will shift from "For China" to "With China".

Of course, realizing this vision necessitates an internal update of Toyota's operational strategy.

For instance, assigning more research and development tasks to Chinese employees can harness their keen insight into smart technology to strengthen Toyota's weaknesses. Simultaneously, Toyota should open up its supply chain ecosystem to allow more Chinese supply chain enterprises to participate in the R&D process.

If Toyota can establish such a research and production paradigm, it will mutually benefit Toyota, the Chinese market, and Chinese supply chain enterprises, achieving a win-win scenario for all parties involved.

Toyota: The Likely "Next BYD"

In the new energy era, foreign-funded enterprises like Toyota and Volkswagen are often criticized for their lack of prowess in intelligent technology.

However, if we consider BYD, the most successful Chinese NEV automaker, we find that NEV success is not solely predicated on intelligent technology.

As everyone knows, whether in the realm of intelligent cockpits or intelligent driving assistance technology, BYD is not the frontrunner.

BYD's core strength lies in its ability to integrate numerous supply chain systems, driving down NEV prices and thereby establishing market advantages in inclusivity and equity.

In fact, from a certain perspective, BYD is emulating Toyota's lean management model. By constructing robust system capabilities and scale, BYD minimizes vehicle manufacturing costs and brings economically advantageous products to the market.

Therefore, by reverse reasoning, Toyota stands out as the automaker most likely to become the next BYD in the NEV market.

Under its lean management model, Toyota boasts a comprehensive supply chain system, capable of manufacturing everything from solid-state batteries to body frames, gears to seat leather. Furthermore, empowered by the QDR quality standard, Toyota enjoys an enviable quality stability advantage.

With these advantages and Toyota's acquisition of intelligent technology in China, the company is poised to compensate for its shortcomings in the future electric vehicle domain.

Toyota BZ3X, which has gradually gained popularity and higher attention, exemplifies this. By combining Toyota's quality with Momenta's intelligent technology, this vehicle could mark the beginning of Toyota's offensive in the smart electric market and potentially be one of the first joint venture models to become mainstream and gain a foothold in the electric market.

Final Thoughts:

Compared to other foreign automakers, Toyota's new strategy implemented in 2025 is notably ingenious.

From a product perspective, Toyota continues to employ multiple powertrains as the cornerstone globally, aiming for extensive market coverage.

Looking ahead, Toyota is using China as a benchmark and steadily progressing in the field of smart electrification, ensuring its own competitive edge. At least compared to Volkswagen and General Motors, which are incurring losses in their NEV businesses, Toyota holds a greater chance of success.

Therefore, it's not difficult to predict that if Toyota completes its transformation in the Chinese market, its development speed in the NEV market could surpass that of BYD. By then, the goal of achieving an annual production of at least 2.5 million vehicles in China by 2030 will undoubtedly be met.

However, from another perspective, Toyota's transformation also serves as a wake-up call for Chinese automakers.

Once overseas competitors achieve a "corner overtake," the NEV barriers of Chinese automakers will be breached. With no shortcuts left, how will Chinese automakers catch up? This is the question Toyota poses for all to consider.