Although the rumors of "being made in China" were intertwined with the official statement that "there are no domestic plans for the time being", the news of Lexus settling in Shanghai spread like wildfire again. On July 23, it was reported that Lexus will be the first to realize the production of the new UX hybrid version and a new pure electric model under the premise of building an independent factory in China. The new cars will be sold in China and simultaneously sold to overseas markets such as Japan. In response to the above news, Toyota China and Lexus China both responded to reporters, saying, "This is hearsay and we will not comment."
"(Shanghai) has indeed been in contact with Toyota, but there are still many uncertain factors in whether Lexus's plan to build a wholly-owned factory in China can be implemented." A person familiar with the matter told reporters, "Of course, if Lexus builds a wholly-owned factory in China, it will produce pure electric models, not hybrid products."
The ever-increasing “threshold” for domestic production
The news that Lexus was once again “made in China” originated from a report by foreign media nearly a month ago.
On June 29, it was reported that Toyota was seeking similar treatment as Tesla, including tax breaks, policy support, land grants, and conditions for direct operation without local joint venture partners. The factory will produce electric vehicles for its Lexus brand.
"Shanghai is willing to attract more foreign investment, but higher-level approval may be required, which means that the negotiations between the two parties are far from complete and may even change." The report quoted people familiar with the matter as saying. At that time, Toyota China did not respond positively to the news, saying only that it "does not comment on the rumors."
In the two decades since it entered the Chinese market, Lexus’s localization has been a story of “crying wolf”. In 2006, Lexus stated that it would consider domestic production if sales in the Chinese market exceeded 30,000 units. By 2007, Guangzhou Toyota's Chinese executives said, "If annual sales of Lexus reach 50,000 units, we will consider domestic production." In 2012, Lexus once again raised the threshold for domestic production to 100,000 units.
Around 2012, it was the stage when the domestic luxury car market was booming. In 2013, Nissan's Infiniti and Honda's Acura successively confirmed joint ventures in domestic production. Hiroshi Onishi, then general manager of Toyota China, revealed at the Shanghai Auto Show that year that local production of Lexus in China was being discussed, and was expected to start with the production of the mid-size premium sedan ES. This is also the first time that Toyota has released news about the domestic production of Lexus.
In 2016, annual sales in China exceeded 100,000 vehicles, and Lexus once again changed its tune and stated that it had "no localization plans for the time being." In October 2018, some media quoted Toyota insiders as saying that in order to compete with BBA, Toyota executives were eager to increase Lexus sales and advocated promoting the Lexus domestic project in China, and Toyota had confirmed the specific plan for Lexus to be produced in China. However, Lexus once again refuted the rumors that "there is no specific time for localization yet."
"Lexus has indeed been discussing matters related to building a factory and producing in China this year, but it is not easy." The above-mentioned person familiar with the matter said that Toyota is very entangled in the face of localization of Lexus. "They (Toyota executives) always believe that the time and various conditions are not very mature yet."
Domestic production still needs the "North-South balancing technique"
In 2018, Tesla announced the establishment of a joint venture in China and invested in building a super factory in Shanghai, which seemed to "open a window" for Lexus' domestic production.
According to the latest industrial policies, foreign brands establishing new energy companies in China will no longer be subject to shareholding ratio restrictions. This means that there is no policy obstacle for Lexus to build a wholly-owned factory in China. But industrial policy is not all Lexus is considering building a wholly-owned factory in the Chinese market.
"The hesitations of Toyota's senior management also include how to deal with the relationship with the current two domestic joint ventures (FAW Toyota and GAC Toyota) - does China need to give an explanation? Will the model launch, supply chain and sales model be reshaped? Balancing these (issues) will be a very long process." The above-mentioned insider analyzed. In addition, the current high-end image of imported Lexus brands among consumers has begun to weaken. Even if it follows Tesla and achieves domestic production, it is still unclear whether Lexus can achieve the same market performance as Tesla. "The establishment of a wholly-owned factory may have a very limited effect on stimulating Lexus sales."
As a luxury brand under Toyota, Lexus once became its profit "money printing machine" in China, but now it has changed with the arrival of the electrification wave. Official data shows that as early as 2019, Lexus’ cumulative sales in China have exceeded 200,000 vehicles, a year-on-year increase of 25%. In 2023, Lexus sales in China will be approximately 181,400 vehicles, a year-on-year increase of only 3%. In contrast, in 2023, Lexus will see growth of more than 20% in other global markets except China. Among them, the year-on-year growth rate in the Middle East, Japan, and East Asia exceeded 60%, and even reached 130%.
Toyota Motor President Tsuneharu Sato once said that the Chinese market will play a very important role in Lexus's electric transformation process. According to the plan, Lexus will achieve 100% electrification by 2035. In Toyota's latest plan, the next-generation BEV (pure electric vehicle) products (i.e., a new generation of BEV products) developed by BEVFactory will be put on the market starting from 2026 by Lexus.
"Lexus electric vehicles produced in China will definitely have more advantages than those produced in Japan." According to Cui Dongshu, secretary-general of the Passenger Car Association, the Chinese market is the world's largest new energy vehicle market, and seeking to build new energy factories in China can enhance its competitiveness, thereby hedging the pressure of electrification transformation in other markets around the world, and continuing to maintain its advantage in the global market. "For the Lexus brand, if domestic production is successful, it can bring more consumer confidence, further enhance competitiveness, and promote industrial integration."