Toyota Motor is planning new Chinese and Mexican factories, ending a freeze on plant construction to better compete against Volkswagen and other global rivals.
The Japanese automaker will make an announcement later this month.
It expects to spend some 150 billion yen ($1.25 billion) on the new facilities, opening them in 2018 in China and 2019 in Mexico. Together, they will boost Toyota’s annual production capacity by up to 300,000 vehicles.
These will mark the first new Toyota factories since a Thai facility that opened in 2013, when the company halted plant construction to focus on honing profitability.
The Chinese plant will be built in the city of Guangzhou, where Toyota has a joint venture with Guangzhou Automobile Group, and make the Yaris subcompact. It will churn out up to 100,000 cars a year. Eyeing the growing demand for autos among the middle class in China, Toyota aims to raise its market share there from 4% by offering more small cars.
In Mexico, Toyota’s factory in the state of Guanajuato will have a maximum output capacity of 200,000 cars a year. The plant will operate around the clock, building a new version of the Corolla sedan for North America. A Canadian factory that now builds Corollas will instead make bigger vehicles. Toyota sees low Mexican production costs helping it achieve more competitive pricing in the U.S., where it holds a 14% market share.
The new factories will require 40% smaller initial investments compared with 2008 outlays. Toyota has cut setup costs by reducing assembly line steps and using stripped-down production equipment. The new plants will be able to retool for different models in a few days, as opposed to nearly a month at older facilities. Such cost-saving adaptations should help them maintain profitability even when output drops sharply.
Until around 2008, Toyota had added 200,000 to 300,000 vehicles of new capacity a year, propelling its global expansion. But this buildup created fixed costs that left it exposed to the crash in automobile demand that followed the global financial crisis. Stung by a full-year operating loss, Toyota announced a three-year freeze on plant construction starting in fiscal 2013. It has since concentrated on boosting earnings capacity and has something to show for it: group operating profit for the just-ended fiscal 2014 is seen coming in at an all-time high.
Once the new factories are up and running, Toyota’s worldwide production capacity will reach 11 million vehicles.
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