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In Chinese port city, Toyota lays foundation to ramp up sales

Reuters

Toyota Motor Corp. is likely to make 120,000 more cars a year in the Chinese port city of Tianjin as part of a midterm strategy that’s gathering pace as China-Japan ties improve, said four company insiders with knowledge of the matter.

The carmaker’s plan to boost annual production capacity by about a quarter in the city will lay the foundation to increase sales in China to 2 million vehicles per year, a jump of over 50 percent, the four sources said.

The Tianjin expansion signals Toyota’s willingness to start adding significant manufacturing capacity in China with the possibility of one or two new assembly plants in the world’s biggest auto market, the sources said. Car imports also could increase, they said.

The move comes at a time when China’s trade outlook with the United States appears fraught and uncertain.

Toyota plans to significantly expand its sales networks and focus more on electric car technologies as part of the strategy, the sources said, declining to be identified as they are not authorized to speak to the media.

Toyota sold 1.29 million vehicles in China last year, and while sales are projected at 1.4 million this year, “capacity constraints” have restricted stronger growth, the sources said.

Toyota’s manufacturing hub in Tianjin currently has the capacity to produce 510,000 vehicles a year, while Toyota as a whole, between two joint ventures, has overall capacity to churn out 1.16 million vehicles a year.

Manufacturing capacity numbers provided by automakers are called straight-time capacity without overtime. With overtime, a given assembly plant can produce 20 to 30 percent more than its capacity.

According to two Tianjin government websites last week, Toyota has been given regulatory approval by the municipal government’s Development and Reform Commission to pursue its expansion.

The two websites — including the official website for the Tianjin development district where Toyota’s production hub is based — said the automaker plans to expand its Tianjin base to be able to make 10,000 all-electric battery cars and 110,000 so-called plug-in electric hybrids annually.

It wasn’t immediately clear when Toyota will be able to start producing those additional cars.

A Beijing-based Toyota spokesman declined to comment.

The Tianjin facilities, which produces such cars as the Corolla and Vios, are owned and operated by one of Toyota’s joint ventures in China.

The venture with FAW Group Corp. in Tianjin plans to invest 1.76 billion yuan ($257 million) for the expansion, according to the two Tianjin websites.

China is sometimes a market difficult to operate for Japanese companies due to historical reasons.

In 2012, cars sold by Toyota and other Japanese automakers were battered when protests erupted across China after diplomatic spats over disputed islets known as Diaoyu in China, Tiaoyutai in Taiwan, and the Senkakus in Japan.

Since then, Toyota has emphasized steady growth rather than taking on risky expansion projects.

According to the four sources, Toyota’s attitude toward China began changing markedly after an official visit to Japan by Chinese Premier Li Keqiang in May. During the visit, Li toured Toyota’s facilities in Hokkaido and was escorted by Toyota’s family scion and chief executive Akio Toyoda.

Toyoda has since sought to boost his company’s presence in China, a vision that had culminated in an active effort to identify specific ways to do just that, according to the four sources.

They said aside from boosting capacity, Toyota is also looking at the possibility of significantly expanding its distribution networks for the mainstream Toyota and premium Lexus brands. It wasn’t immediately clear how significant a distribution network expansion Toyota is planning for both brands. Toyota has more than 1,300 stores for the Toyota brand and nearly 190 for the Lexus.

The timing for the expansion couldn’t be better. Earlier this year, Toyota was able to finally launch a couple of much anticipated, potentially high-volume subcompact SUVs — two China-market versions of the Toyota C-HR crossover SUV, which hit showrooms in the United States last year.