Recently, Toyota Motor Corporation released its financial report for the second quarter of fiscal year 2025, covering the period from July to September 2024. In this report, the company's net sales reached an impressive ¥11.44 trillion, but its net profit took a significant hit, plummeting to ¥573.77 billion, marking a drastic decline of 55% year-on-yearSimilarly, operating profit also saw a downturn, decreasing by 20% to ¥1.16 trillionThese figures paint a rather concerning picture for one of the world's largest auto manufacturers, which has for decades been synonymous with reliability and innovation.

On November 10, Reuters reported that Toyota has set its sights on a target of producing at least 2.5 million vehicles annually in China by 2030, according to three insiders familiar with the company's plansIn response, a representative from Toyota emphasized that amid fierce competition in the Chinese market, the company is continuously evaluating various strategies while remaining committed to developing "better cars" that meet local consumer demands

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This response underscores the strategic importance of China as a focal market for Toyota, which has long been a pivotal region for the automaker's global sales.

In a bid to boost production efficiency, Toyota intends to integrate its operations in two joint ventures in China more closelyInsiders suggest that the company plans to delegate more research and development responsibilities to local employees, aiming to better align with market needs, particularly in areas such as electric vehicles (EVs) and smart connectivity technologiesThis strategy reflects a broader trend within the automotive industry, where global players seek to localize their operations to enhance responsiveness to rapidly changing consumer preferences.

Can the target of 2.5 million units per year be achieved?

Regarding these developments, inquiries made by journalists to Toyota have not yet elicited a response

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industry expert Ma Qiancheng commented in an interview, highlighting several factors contributing to Toyota's profit decline“The most immediate issue is the overall drop in productionAlthough the decline may not appear substantial, maintaining current production levels likely incurs higher costsFor example, in the competitive landscape of the electric vehicle market in China, marketing expenses have escalated.” His observations capture the real tensions Toyota faces as it struggles to maintain market share amid the rising popularity of EVs.

According to Toyota's financial report, its global production volume in the first half of fiscal year 2025 fell for the first time in four years, totaling 4.71 million vehicles—a decrease of 7% compared to the previous yearMoreover, sales figures also mirrored this decline, with 4.556 million vehicles sold, marking a 4% decrease year-on-year.

Specifically, in September of this year, Toyota's global sales reached 923,311 vehicles, indicating an 8% year-on-year drop

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Cumulatively, in the first nine months of the year, sales amounted to 7.899345 million vehicles, down 4.4%. Notably, within the Chinese market, Toyota sold 160,457 vehicles in September, reflecting a significant decline of 9.2% year-on-year.

Yoichi Miyazaki, Toyota's Chief Financial Officer, pointed out during the earnings conference that the decline in production was due to certification issues that necessitated a reevaluation of manufacturing environments and culture, placing safety and quality at the forefront of their operationsThis emphasis on quality could impact production timelines and ultimately sales performance, adding another layer of complexity to Toyota's operational framework.

Amid the strategic target of achieving 2.5 million annual production in China by 2030, observers have noted a cautious response from Toyota regarding external challengesReports indicate that Toyota's approach remains adaptable, making concerted efforts to navigate these obstacles without publicizing detailed strategies.

On the subject of the ambitious production goal, Ma Qiancheng remarked that the target itself is not exceptionally high

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Over the past few years, Toyota's annual sales in China have generally hovered around 2 million unitsWith approximately five to six years left until 2030, achieving this target seems plausibleNonetheless, he emphasized that a crucial condition for this achievement hinges upon sustaining current sales levels of Toyota’s gasoline vehicles“If the sales of gasoline vehicles decline, then the role of electric vehicles in compensating for that drop becomes paramountIf they can make up for the decline in gasoline vehicle sales, the target of 2.5 million units could indeed be within reach,” he elaborated.

Moreover, Zhang Xiang, an expert consultant at Beijing Zhongzhihua Engineering Technology Research Institute Co., Ltd., suggested that while reaching the target is feasible, significant product transformation and substantial investment in developing electric vehicles tailored for the Chinese market are essential

His assertive stance reflects the broader industry consensus regarding the necessity for strong R&D initiatives in new powertrain technologies.

Is Toyota being cautious in its transition to electric vehicles?

Globally, Toyota has traditionally leveraged its expertise in gasoline vehicles to maintain a leadership position in automotive salesAccording to a report released by Yiche, Toyota ranked first in global sales between January and September of this year, with a staggering volume of 6.24 million vehicles soldIn stark contrast, competitors Volkswagen and Ford trailed significantly with sales figures of 3.55 million and 2.81 million units, respectively, indicating that Toyota's sales are nearly equivalent to the sum of both competitors.

As the Chinese market witnesses rapid advancements and widespread adoption of electric vehicles in recent years, the figures are noteworthy

According to data released by the China Passenger Car Association on November 8, the national retail sales of narrow passenger vehicles reached 2.261 million units in October, reflecting an impressive increase of 11.3% year-on-yearCumulatively, retail sales for 2023 have reached 17.835 million units, marking a total increase of 3.2%. In particular, the retail market for conventional gasoline vehicles saw a decline, with sales dropping to 9.508 million units, a 16% decrease compared to the same period last yearIn contrast, the market for new energy passenger vehicles reported a remarkable retail sales volume of 8.327 million units in October alone, constituting a year-on-year increase of 39.8%. The penetration rate of electric vehicles in retail sales in October reached an impressive 52.9%, illustrating the growing consumer appetite for sustainable mobility solutions.

Throughout these developments, Toyota has exhibited a relatively conservative stance regarding electric vehicles

In October, Akio Toyoda, Toyota's Chairman, publicly voiced concerns about the potential ramifications of a swift transition solely to electric vehicles, including significant job losses within the automotive sectorHe reiterated a cautious and step-by-step approach towards electric vehicle transitions, thus reflecting the underlying apprehensions within the industry.

“Toyota has always approached the electric vehicle sector with cautionFor the company, gasoline vehicles form the core of its business interestsA decline in gasoline vehicle sales could present considerable financial lossesIf the transition to electric vehicles occurs too rapidly, it risks jeopardizing suppliers and dealerships who may struggle to adapt, thus threatening their viabilityBalancing the interests of all parties involved remains a pivotal consideration for Toyota,” noted Ma Qiancheng.

Additionally, Zhang Xiang further analyzed that while Toyota's R&D capabilities, sales abilities, and production prowess are robust, most of their developmental resources have historically been allocated toward gasoline vehicles

Transitioning towards electric vehicles would necessitate modifying existing production lines, demanding substantial investment and carrying inherent risks.

To expedite its electric vehicle development, Zhang suggested that partnering with Chinese automotive companies could prove beneficial“Toyota's joint ventures, such as with FAW and GAC, possess considerable technological advancements in electric vehiclesBy leveraging these collaborations, Toyota could quickly introduce electric vehicles tailored for the Chinese market,” he proposed.

In fact, Toyota has been proactive in exploring partnerships within China, having formed a collaboration with BYD back in 2019. This alliance culminated in the launch of their first cooperative model in 2022. Furthermore, Toyota's establishment of a joint venture with Pony.ai in 2023 also highlights its commitment to advancing autonomous driving technologies.

“To accelerate its transformation towards electrification, integrating with domestic supply chains represents a crucial avenue for Toyota