Lexus Going Domestic with a Fully-owned Electric Vehicle Factory?

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BBA has gone domestic, as have Cadillac and Infiniti. Among the luxury brands, Lexus has been rumored to be considering domestic production for over a decade but has never actually done it. The reasons are mainly twofold: Toyota believes that domestic production would risk a decrease in product quality, and secondly, Toyota does not want to share the high profits of the Lexus brand with its domestic partners. Additionally, in 2018, the import car tariff rate in China was reduced, and sea and land transportation were also convenient, making the domestic production of Lexus seem less necessary. However, recently, there has been a new version of Lexus going domestic, which is somewhat unexpected but also seems to be expected.

It is reported that Toyota is discussing with Shanghai authorities the possibility of building a wholly-owned electric vehicle factory in Shanghai to produce Lexus brand electric vehicles. Toyota hopes to obtain tax relief, policy support, land authorization, etc., and have 100% control without the need for domestic partners. This series of requirements are very familiar, right? Recall when Tesla went domestic, it was roughly this operation model. Perhaps the success of Tesla has given Toyota hope, and with the cancellation of the foreign equity ratio limit in the Chinese car market, and under the great pressure of price wars, fierce competition from Chinese competitors, and sales not as good as before, the Lexus brand has shown obvious terminal fatigue.

Official data shows that in 2023, Lexus brand sales in China were about 181,400 units, a year-on-year increase of 3%, and the share of the Chinese market in Lexus's global share dropped from 28% to 22%. As early as 2019, Lexus's cumulative sales in China had exceeded 200,000 units, with a year-on-year increase of 25%. And Lexus, which always holds the "high quality" brand, also has quality issues. On June 21st of this year, Toyota announced a recall, recalling some imported Lexus RX, NX, UX, LS, ES, RZ, and some imported Toyota Crown SportCross produced from November 7, 2022, to September 8, 2023, a total of 53,082 vehicles. The main reason is that the camera installation is poor, the waterproof performance is insufficient, which may cause the camera to be unable to image, and there is a safety hazard. In the era of new energy vehicles, intelligence is indispensable, and the quality control problem of the camera is small, but the result is serious.

In fact, in order to boost sales, Lexus has long been trying to "exchange price for volume". The Lexus ES, which once had to be priced up by 20,000-30,000 yuan, had a discount of 40,000-50,000 yuan in the second half of 2023, and now the discount can even reach 70,000-90,000 yuan. This method has indeed brought a certain increase in sales. From January to May 2024, Lexus's sales were 72,275 units, a year-on-year increase of 33.4%. As the mainstay of Lexus's sales, the Lexus ES series sold 45,937 units, a year-on-year increase of 58.16%. However, "price for volume" has been played out by major car companies, and the first echelon of luxury brands, BBA, has also come down, with discounts of 50%, 60%, 70%, and the strength is not small. Now if you want to "roll the price", it may be "unrollable".

In addition to sales considerations, after Toyota's president Sato Hengzhi took over, his own view on electric vehicles has changed a lot, proposing the "electric vehicle first" plan, and determining Lexus as the pioneer of Toyota's automobile electrification in the future. At present, there is only one pure electric vehicle sold by Lexus in China, the Lexus RZ.

However, domestic production is not that simple. On the one hand, Toyota has very high requirements for product quality and brand image, and the quality after domestic production needs to be guaranteed; on the other hand, China's supervision and policies on new energy vehicles are also constantly changing, and Toyota needs to pay more attention to this. In addition, the competition in China's new energy vehicle market is very fierce, especially in the high-end market, there are also many strong players, such as Ideal, NIO, Weilai, BYD, and so on. After Lexus goes domestic, whether it can have an advantage in the level of intelligence, three-electric systems is really hard to say. If you want to enter the market quickly, you must speed up the mass production, and at this time you may have to choose to join hands with well-known domestic parts merchants, so whether the pure electric Lexus can make a name for itself is also a big problem.