The company’s bet that consumers weren’t quite ready to embrace battery electric vehicles proved prescient, as Toyota’s hybrid sales grew as EV demand stumbled in markets like North America. 

Yet Toyota may now be ready to embrace battery electric vehicles again as part of its multi-pathway approach, with a new wholly owned plant in China. 

“We decided to establish a wholly owned company for the development and production of Lexus BEVs and batteries in Shanghai, China,” Toyota chief financial officer Yoichi Miyazaki said following the release of the company’s most recent quarterly earnings on Wednesday. 

Miyazaki added that “Chinese members” will lead the planning and development of these Lexus cars, matching the unique needs of Chinese customers.

“Our goal is to become a company that is more loved and supported by the people of China,” Miyazaki said.

In a separate statement, Toyota said it hoped a new partnership with the Shanghai government will help China become carbon-neutral by 2060.

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Toyota’s Shanghai factory will develop a new BEV under its premium Lexus brand, with production starting from 2027. Initial capacity will be 100,000 units per year, with 1,000 new jobs created during the startup phase.

In its statement, Toyota added it wanted to meet Chinese demand for new energy vehicles, a term that includes both battery electric vehicles and plug-in hybrids, more quickly.

Toyota may be taking a page from Tesla’s playbook with its new Shanghai factory. The U.S. carmaker wholly owns its gigafactory in Shanghai, the first car plant in the country to operate without a local partner.

China is the world’s largest and most competitive market for electric vehicles. Local companies like BYD have surged ahead of their foreign competition, pushing out more established automakers that have been slow to release new EVs in the Chinese market.

Toyota also revealed its U.S.-based battery manufacturing company will start to ship batteries in April. Toyota Battery Manufacturing North Carolina is the Japanese carmaker’s first in-house battery manufacturing company in the U.S., and will produce batteries for its hybrids, plug-in hybrids, and battery electric vehicles. The $14 billion investment will create around 5,000 jobs. 

Toyota earnings

Toyota on Wednesday raised its annual income forecast for its fiscal year, which ends in March, to 4.7 trillion yen ($30.6 billion), up from 4.3 trillion yen. The carmaker credited stabilized production and improved product competitiveness for its optimism.

Shares in Toyota rose 3.1% on Wednesday, reversing losses earlier in the week spurred by the Trump administration’s announcement of new tariffs.

Yet Toyota also reported a second straight quarter of declining sales, measured year on year. The company sold 2.44 million vehicles in the last three months of 2024, a 4.2% drop from the same period a year earlier.

Between April and December, the first nine months of its fiscal year, Toyota sales including Lexus reached 7.76 million, down 2% from the same period a year ago.

The company blamed “certification issues and other factors” for the drop. Toyota stopped production of some models last year owing to a safety scandal that included several other Japanese automakers.

Yet Toyota’s hybrid sales remained strong, making up 42% of Toyota and Lexus sales between April and December 2024, up from 33.4% a year ago. North America and Europe mainly drove sales.