The world’s biggest carmaker notched another bumper month of sales in August, putting it on track for its first annual growth in China in four years.
Toyota has been winning over customers with a two-pronged approach that sees it produce locally made new-energy vehicles at attractive price points, as well as maintaining a lineup of hybrids that have tapped into growing demand for alternatives to fully electric cars.
Japan’s legacy brands have been slow to respond to the rapid growth in demand for electric cars, and their lack of offerings opened the door for Chinese manufacturers like BYD Co, which dominates the market with its advanced software-laden models.
That prompted Toyota to rethink its playbook and the launch of the bZ3X – a fully-electric compact crossover that costs about US$15,000 – has quickly proved popular.
“Over the last five years, the Chinese auto market has presented very tough going for foreign automakers,” said Julie Boote, an automotive analyst at London-based research firm Pelham Smithers Associates Ltd.
Toyota has indicated that it was trying to replicate the Chinese automakers’ success by building low-priced EVs with a high content of tech features, she said. “It seems that the company has succeeded.”
The combination of tech and price convinced Yu Cunhai, a Shanghai-based IT entrepreneur, to buy a bZ3X back in May. Initially he was looking at a BYD Song L, for its affordability, or Tesla Inc Model Y for performance and brand cachet, but posts of the bZ3X on social media caught his eye.
He ultimately bought the Toyota model, which was more affordable than the Tesla, and even with advanced driver assistance systems was competitive on pricing with the BYD. It was a return to the Japanese brand for Yu, who had owned a Corolla for 13 years and then a Levin.
“Toyota is a good brand, and our first Corolla served us well,” he said. “In general, it’s an affordable EV for a city commute.”
Growing lineup
Beyond the bZ3X, Toyota also debuted the bZ5 earlier this year and plans to expand its China lineup with models including the electric bZ7 and a revamped Lexus, which will be available both as an EV and a hybrid.
Toyota has made clear its ambitions to weather the intense competition, with plans to operate a wholly owned factory in China – making it only the second foreign passenger carmaker after Tesla to do so.
It will produce battery-powered EVs for its Lexus brand at the facility near Shanghai, which should start production in 2027 and have an initial annual output of 100,000 units.
Still, the carmaker faces continued headwinds in its push for a bigger share of China. While sales are increasing, average profit per car dropped to ¥162,000 ($1,090) in fiscal 2024 from ¥274,000 in fiscal 2021, according to Pelham Smithers. Its total China profits have tumbled to ¥290 billion from ¥525 billion in the same period.
Toyota’s foray into made-for-China EVs also has some teething problems. Yu said his bZ3X had dozens of trivial issues and described some of the design details as falling short of the carmaker’s older gasoline models – though given the chance, he’d choose the car again. And the company is at the mercy of rapid changes in Chinese consumer tastes.
A surge in sales of hybrid vehicles last year has given way to more modest growth as advancements in battery technology, better charging infrastructure and more affordable options push buyers back into fully electric cars.
Hybrid sales were up 17% in the first eight months of this year, from the 76% growth in the same period last year, according to Passenger Car Association figures.
But Toyota’s success this year contrasts sharply with Japanese peers, who have similarly struggled to keep up with Chinese automakers.
Toyota’s China sales were up 6% between January and August, while Nissan Motor Co’s fell 9% and Honda Motor Co. recorded a 21% drop.
There’s now a clear divide in new-energy vehicle sales among Japanese carmakers in China, said Bloomberg Intelligence senior auto analyst Tatsuo Yoshida. “Toyota on one side, everyone else on the other.”