Toyota's vehicle sales in China declined sharply in August, marking the seventh consecutive month of falling deliveries for the automaker in the country. The Japanese carmaker reported a 23 percent drop in sales last month, reflecting ongoing challenges in the world’s largest automotive market.
The decline is the most pronounced for Toyota in China in over a decade and is part of a broader slowdown impacting the global auto industry. Rising fuel prices, stemming in part from geopolitical tensions in the Middle East, have dampened demand for petrol and hybrid vehicles—key segments for Toyota. This shift in consumer preferences has pushed many customers toward electric vehicles (EVs), resulting in Toyota’s sales for the first eight months of 2023 falling nearly 19 percent to 927,866 units.
While Toyota has historically been one of the most resilient foreign automakers in China, the latest downturn highlights its exposure to intensifying competition from domestic players. Chinese manufacturers, notably BYD, have accelerated market share gains by focusing on EVs. This dynamic has also affected other global carmakers with significant operations in China, including Volkswagen, BMW, and Mercedes-Benz, all of which have revised down their annual forecasts following weakened sales.
In response, Toyota is shifting its approach toward a more localized “China-for-China” strategy. This involves increasing the use of Chinese parts and suppliers and empowering local engineers to better compete against nimble homegrown EV companies. This refocused strategy has shown early promise, with battery electric vehicle sales in China rising 36 percent in August.
Toyota’s joint venture partner Guangzhou Automobile Group (GAC) recently announced plans to acquire a 50 percent stake in FAW Toyota, Toyota's other Chinese joint venture. The consolidation could enable improved parts sharing, economies of scale, and cost efficiencies by combining the two ventures’ operations.
Separately, Toyota is breaking from the joint venture model by constructing a wholly owned factory in Shanghai dedicated to producing Lexus EVs, scheduled to begin operations next year. The company is also preparing for a major overhaul of its global factory network, investing in robotics and modern technologies to enhance productivity and competitiveness amid intensifying pressure from Chinese automakers.
The difficulties Toyota faces in China mirror a broader downturn in the country’s auto market, where total vehicle sales have fallen 21.8 percent this year to approximately 13.4 million units. Sales of traditional internal combustion engine (ICE) vehicles have been hit particularly hard, while the EV segment continues to grow.
Bill Russo, chief executive of Automobility Ltd., noted that China’s market contraction is accelerating the transition away from ICE vehicles, rapidly shrinking opportunities for automakers reliant on conventional powertrains.
Toyota’s challenges in China have coincided with a 15 percent decline in its share price this year, further pressured by a stronger yen that weighs on the company’s earnings outlook.