Honda and Nissan plan to merge in June 2025, forming the world’s third-largest automotive group, trailing only Toyota and Volkswagen. At the same time, Toyota’s final strategic move in the Chinese market—localizing Lexus production—has materialized with the establishment of a wholly-owned new energy vehicle (NEV) factory in Shanghai. This development is expected to accelerate China’s transition into a global automotive manufacturing hub.
By 2025, Toyota's new strategy for the Chinese market has finally come into focus.
Challenges to Dual-Model Strategies
Following the failures of Honda's dual-model strategy and Nissan's two-generational co-existence approach, Toyota's own dual-model strategy is also undergoing significant adjustments. This leaves Volkswagen's success with its ICE-era dual models as a historical benchmark.
Toyota’s first-ever pure electric SUV, thebZ4X, transitioned from dual production by GAC Toyota and FAW Toyota to exclusive production at GAC Toyota. Reports suggest that models like the Corolla, Camry, and Venza may also consolidate into single production lines, eliminating twin-model strategies altogether. This shift parallels vehicles like the bZ3, bZ3C, and GAC Toyota bZ3X—models with identical names but distinct market positions and designations.
Whether due to internal cannibalization during price wars or the need to pivot towards premium market demands, abandoning the dual-model strategy has become a necessary choice for Toyota China.
Although Toyota is unlikely to achieve its 2024 target of producing and selling 1 million vehicles across both ICE and NEV segments, it has maintained a steady growth trajectory. Compared to Volkswagen’s tumultuous foray into EVs and the financial losses endured by General Motors and Nissan, Toyota’s joint ventures—GAC Toyota and FAW Toyota—stand out as pillars of stability.
As 2025 unfolds, and with domestic automakers surging ahead while joint ventures concede ground, the Chinese market will witness the fully realized potential of Toyota.
From Corolla to Highlander: Toyota’s Strategic Evolution
For decades, Toyota relied on the Corolla to sustain its growth in China. Subsequently, the Camry accelerated its expansion, followed by high-end models like the Highlander, Sienna, Crown Kluger, and Granvia.
Toyota has established its largest overseas research and development hub for smart EVs,IEM by TOYOTA, as well as the TMCAP hybrid powertrain production facility, both located in Changshu, Jiangsu Province. These investments underscore Toyota’s comprehensive preparation for the electrification era and the localization of Lexus production.
“Slow accumulation, rapid growth” aptly describes Toyota’s trajectory in China. Over the past five years, Toyota expanded from entry-level sedans and SUVs to a full spectrum of vehicle offerings with diverse powertrains. The next five years will likely reveal Toyota’s strategic brilliance to an even broader audience.
Despite a perceived lack of innovation in EVs, Toyota has focused on accelerating the adoption of hybrid vehicles. Collaborations with BYD and GAC Group are set to deliver three new all-electric models by 2025, with more rapid product launches expected.
Toyota’s approach in the NEV segment is pragmatic rather than disruptive. Unlike new EV startups that leverage technology and hype, Toyota aims to rival BYD by achieving global annual sales in the millions.
The global proliferation of hybrid vehicles and the accelerated rollout of Toyota’s electric models in China are only the groundwork for the introduction of itssuper engine in 2026 and solid-state battery technology in 2027. These developments will solidify Toyota’s dominance in the global automotive market.
Toyota’s Next Growth Phase in China
Adopting Tesla's Shanghai model, the localized production of Lexus is poised to usher Toyota into a new phase of rapid growth in China. Beyond enhancing its brand equity, this move aligns with supportive Chinese industrial policies.
Historically, Toyota has demonstrated a knack for foresight—maintaining stability during fierce market competition and achieving growth during market downturns. Among global automakers, Toyota’s ability to “outmaneuver on corners” in China remains unmatched.
Over the next five years, Toyota plans to increase its production capacity in China from the current 2 million units to at least 2.5 million units, potentially reaching 3 million. FAW Toyota’s NEV factory and GAC Toyota’s fifth plant have already reserved land for new facilities. These will incorporate Toyota’s innovative production layouts and techniques, such asintegrated die-casting and autonomous vehicle body transport systems, significantly reducing construction costs and timelines.
Facing Overcapacity and Toyota’s Confidence
Amid intense competition in China’s NEV market, Toyota’s combined standard annual capacity of 2 million vehicles across GAC Toyota and FAW Toyota may risk oversupply. Nonetheless, Toyota has boldly established a wholly-owned Lexus factory in Shanghai, reflecting its unparalleled confidence as the world’s leading automaker.
From January to November, Toyota (including Lexus) sold 9.25 million vehicles globally, a 1.2% year-on-year decline. North American sales reached 2.12 million units (+5%), while Chinese sales, including Hong Kong and Macau, stood at 1.59 million units (-3.7%). These figures underscore the untapped potential of the Chinese market.
As the world’s largest NEV market, China boasts the most comprehensive and robust NEV supply chain—a critical factor for Lexus’s transition to an all-electric lineup. Lexus needs China just as much as China needs Lexus to counter global automotive trade uncertainties.
Beyond Tesla and domestic automakers, aligning Japanese and American automotive giants with the Chinese market strengthens China’s supply chain, expands its manufacturing capabilities, and mitigates international trade restrictions.
Exporting from China: A New Frontier for Toyota
The localized production of Lexus is not merely a Tesla-style NEV export base. Toyota’s domestic lineup and strategies in China will inevitably adapt, with one major shift being the export of Chinese-manufactured Toyota NEVs.
Toyota’s bZ4X is produced only in Japan and China, while the entirebZ series has undergone significant localization in China. Collaborations with BYD and GAC Group have positioned southern and northern Toyota plants as potential global export hubs, marking a historic breakthrough for joint ventures.
For Toyota, the transformation of China from a consumption market to a global manufacturing base is monumental, signaling expanded production capacity that will bolster China’s automotive ambitions.
In the face of periodic trade restrictions from North America and Europe targeting Chinese automakers, multinational export hubs like Tesla and Volkswagen serve as critical countermeasures, reinforcing China’s position in global automotive exports.
By 2025, domestic automakers capable of deciphering Toyota’s sophisticated global strategies will likely diversify their focus beyond all-electric vehicles, embracing multi-powertrain and multi-market strategies to gain a competitive edge.
BYD’s dominant position has propped up the NEV market, forcing other domestic automakers to compete on price. However, once Toyota completes its transformation, it may leverage its extensive lineup to replicate BYD’s strategy in global markets.
As Chinese NEV makers ramp up exports, they must avoid internal conflicts that could derail their progress against traditional automakers. Toyota’s integrated approach—balancing ICE vehicles and NEVs—may establish a new barrier for multinational competition.
Understanding Toyota’s strategic brilliance is reserved for a select few. Yet, to counter Toyota’s influence, success will require a focus on ICE vehicles. China’s automotive industry, led by pioneers like BYD, must prepare for the next wave of competition: who will emerge as the next dominant force?
