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China underpins Toyota’s record sales

  • May 8, 2019
  • , Nikkei Business digital
  • JMH Translation
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By Koichi Kitanishi, Nikkei Business reporter

 

Toyota Motor announced on May 8 that its group sales rose 3% from the previous year to 30.2256 trillion yen in the fiscal year through March 2019, topping 30 trillion yen for the first time. The company’s consolidated operating income also increased by 3% to 2.4675 trillion yen, which was largely attributable to the recovery of the European market. But it is noteworthy that the company is steadily increasing its sales volume in China, whose economy is stagnant. Toyota is boosting its presence in the country partly due to the strong showing of the Lexus luxury brand, which it exports from Japan, while the ongoing U.S-China trade war is reducing U.S. car shipments to China.

 

“It’s higher than we expected.” On May 7, a day before Toyota announced its financial results, the market was roused by Toyota’s announcement of April new car sales in China. It sold 142,600 vehicles, up 20% on the year. This represented the 14th consecutive month of year-on-year growth, but the company recently saw growth of only a few percent.

 

China’s new car sales for 2018 fell for the first time in 28 years. One analyst forecasts that “the economy will start to pick up around the summer of 2019” helped by reduced inventory and tax breaks. But consumer sentiment has dropped significantly due to the escalating trade war between Washington and Beijing.

 

Amid that situation, Toyota pulled in a combined 255.5 billion yen for operating profit and an equity method gain in China in fiscal 2018. Under the situation where Toyota is almost “the only winner,” the Lexus brand particularly showed significant growth. The brand sold 160,500 cars in 2018, up 21% on the year. And sales in the single month of April 2019 rapidly increased by 46% year-on-year to 21,800 units. The aforementioned analyst says, “The Lexus’s relatively greater value is becoming more well known in the luxury car market” while Germany’s Daimler and BMW, which export flagship cars from their American factories, are severely affected by higher tariffs.

 

Toyota has been said to lag behind competitors in China. It is widely believed that the cause of the problem started in the early 1980s, when the company did not positively respond to the Chinese government’s request for technical cooperation. Toyota Executive Vice President Koji Kobayashi acknowledges, “We’re one lap behind competitors.” But Toyota recently enjoys a good relationship with China, as indicated by Chinese Premier Li Keqiang’s visit to a Toyota-affiliated facility in Hokkaido when he came to Japan in May 2018. The company plans to bring electric vehicles and other environmentally friendly cars to the market in succession and conduct joint research on car and hydrogen energy with China’s Tsinghua University in a bid to further penetrate the Chinese market.

 

Major European automakers, which have relied on China for new car sales, underperformed in the most recent business results, which reflected China’s economic slowdown. But for Toyota China is close to an “undeveloped area” because the automaker accounts for only about 5% of the Chinese market. In other words, Toyota believes it has room for growth in China. Executive Vice President Kobayashi says: “It’s difficult to increase [the market share] at once. But the number of customers will increase. We’d like to work slowly and steadily.”

 

In China, which is eager to introduce advanced technologies, Toyota is getting a step ahead of competitors in innovation in the auto industry, which is, as President Akio Toyoda puts it, in the midst of “the greatest transformation.” Toyoda said, “I think there was room for improvement in China compared with other companies.” If the company can take advantage of its regrettably slow entry into China, the fact that it is “one lap behind competitors” may actually become its strength.

 

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