What's behind Toyota's hybrid car plans for China?

September 12, 2011
Toyota electric vehicle in China

A variety of factors are thought to be behind Toyota's announcement that it will manufacture key components for its hybrid cars in China. Hiroyoshi Yoshiki, a senior Japan-based Toyota executive, said at an auto conference in Tianjin recently that the company is considering a move to shift to China production of some of the key components for hybrid and other heavily electrified cars.

It would be the first time Toyota's hybrid technology has have been made outside of Japan and it would give the company a second opportunity to crack China's greener car market. Toyota once assembled the Prius in China with key components being made in Japan and sent to Chinese assembly lines but production ceased in 2009, due to what are believed to be the cost factors.

Back in January the company was in denial about plans to assemble plug-in hybrids in China when it starts domestic production next year. This stance may now have changed, given the recent difficulty the company has had selling its home produced hybrids in China. In August automotive trade journal Wards revealed that Toyota managed to sell only one Prius – the world’s most commercially successful hybrid car – in China in 2010.

Already the global leader in hybrid vehicles, Toyota plans to add 10 new models to its hybrid product line by 2015 as part of its 2020 Global Vision.

It's unclear exactly which components will be made at Toyota's research and development facility in China but according to one report in the Wall Street Journal “it is unlikely to shift production of components it is developing for its next generation of electric-gasoline hybrid and pure-electric vehicle technologies, according to a person familiar with the matter. That reluctance highlights Toyota's desire to keep its most-advanced technology out of reach of Chinese companies” it said.

The new USD235 million Toyota Motor Engineering & Manufacturing (China) Co facility in Changshu, Jiangsu Province, started operations earlier this year with an ambit to conduct research on energy-saving and alternative-energy vehicles. As a wholly-owned Toyota subsidiary the firm will not fall foul of China's plans to restrict foreign ownership of joint ventures producing key components of new-energy vehicles to lass than 50 percent.

Other factors, apart from breaking into the Chinese hybrid market, are also thought to be behind Toyota's China move. China produces more than 95 percent of the world's rare earth supplies and has imposed increasing restrictions on its exports. Rare earth elements are key vital ingredients to hybrid car parts such as batteries, so Toyota's move produce components in China may side-step the export quota problem.

Another issue has been the Tōhoku earthquake, the consequences of which have devastated Toyota's revenues. Interrupted supply lines and destroyed component manufacturing plants not only hit domestic production, but other manufacturing and assembly plants globally. This move could be an early indicator that Toyota might diversify its production base.