Toyota, partner to invest US$461m in China
(Bloomberg)
Updated: 2004-09-06 14:33

Toyota Motor Corp., Asia's largest carmaker, will invest 3.8 billion yuan ($461 million) with its partner Guangzhou Automobile Group to boost capacity in China and catch up with rivals with established car plants in the country.

Toyota and Guangzhou Auto will build Camry models in a new factory located in the city of Guangzhou, the companies said in a statement. The factory will start production in 2006 and have an annual capacity of at least 100,000 units.

Toyota is adding production and introducing new models to increase its share of China's car market to 10 percent from its current 3 percent by 2010. It lags Honda Motor Co., which has 5 percent of the market, Volkswagen AG, the market leader with about 30 percent and General Motors Corp. with about 12 percent.

``The China project will help Toyota to become a real global automaker and keep on track to become the biggest automaker in the world,'' said Atsushi Osa, who helps manage the equivalent of US$110 billion at Sumitomo Mitsui Asset Management Co. in Tokyo. ``Toyota's plan in China is finally coming through.''

Toyota shares rose as much as 2.9 percent to 4,330 yen and traded at 4,310 yen in Tokyo at 2:27 p.m.

More Capacity

The companies may boost capacity at the new factory to 250,000 units annually, if there is demand, Toyota Executive Vice President Kosuke Shiramizu said. He did not give a time frame. Toyota plans to stop importing Camrys into China from Japan.

Toyota has installed production capacity of 135,000 units with its partner Tianjin FAW Xiali Automobile Co. It has planned additional capacity of 100,000 units for its Crown model, which will be added in 2005. It plans to add an additional 50,000 units of Crown production if there is demand.

Separately, Toyota helps produce 220,000 units with three other companies via technology assistance, including the Land Cruiser 100 and the Hiace.

``Toyota has just started development in China,'' said Akio Toyoda, senior managing director for Toyota. ``I hope to see a lot more Toyota cars on China's roads.''

Toyota expects sales in China will climb 50 percent this year to 150,000 units. The Corolla, which Toyota began building locally in February, should account for a third of 2004 sales.

Faster Growth

Toyota's sales are growing faster than market leaders Volkswagen AG, General Motors Corp. and Honda, all of which set up manufacturing facilities in China before the Toyota-City Japan- based carmaker. Toyota has invested 80 billion yen before the joint venture with Guangzhou Auto, according to company data.

Toyota's vehicle sales in China rose 95 percent to 98,000 units in 2003. That compares with a 36 percent increase for Volkswagen, 46 percent for General Motors and 87 percent for Honda, according to figures released by the carmakers.

``Toyota is still a second tier automaker is China and the new venture will help its efforts in narrowing the gap between itself and the top players,'' said Zhang Xin, an analyst with Guotai Junan Securities Co. in Beijing. ``But the introduction of the Camry may not help the company as much as it may have done a year ago as everybody is cutting prices.''

Toyota's Camry cars will face competition from General Motor's Regal, Mazda Motor Corp.'s Mazda M6 and Honda's Accord, said Guotai Junan's Zhang. Toyota will have difficulty gaining market share if it prices the Camry higher than 350,000 yuan, Zhang said.

Investment

The two companies will invest 1.3 billion yuan in cash to capitalize the venture said Zhang Fangyou, Chairman of Guangzhou Auto. The venture will raise the additional 2.5 billion yuan from financial institutions, he said.

The new investment comes amid slowing growth in the Chinese market. China's passenger car production fell 0.1 percent in July from a year ago to 171,900 units, while sales rose 3.7 percent to 170,000 units during the period, according to the Chinese Association of Automobile Manufacturers. Passenger car sales surged 76 percent last year to 1.97 million units.

Tianjin FAW Xiali Automobile Co., Toyota's other partner in China, said first-half profit fell 79 percent to 74.9 million yuan after costs rose and prices fell. The two companies build Crown and Vios passenger cars together.

Slower growth has prompted carmakers to cut prices to lure customers. Volkswagen, the largest foreign automaker in China, reduced its prices by as much as 12 percent in June following General Motors' decision to cut prices for its Buick cars and wagons by an average 8 percent. Carmakers will continue lowering prices until China's vehicle costs approach those overseas.

Toyota's sales in China rose 23 percent in the first six months of 2004 after it started to produce Corollas in China in February, Toyota Senior Managing Director Takeshi Suzuki said last month. The carmaker aims to sell 50,000 Corollas this year.

Guangzhou will be the only city in the world where Honda, Toyota and Nissan Motor Co., all have factories in the same region, according to Koji Endo, an analyst at Credit Suisse First Boston Japan Inc.

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