Lexus follows in Tesla's footsteps to set up a factory in China, with plans to start production in 2027

【PCauto】Lexus operates only three manufacturing facilities outside of Japan, situated in Cambridge, Canada; Kentucky, USA; and Bangalore, India.

Recently, Toyota, in collaboration with the Shanghai government, announced the construction of a new factory for Lexus in Shanghai, marking the brand's fourth overseas manufacturing site. This facility, which is wholly financed by Lexus, will specialize exclusively in the production of Battery Electric Vehicles (BEVs) while also covering battery research and development.

Currently, Lexus is experiencing a decline in sales within the Chinese market. In 2021, the brand recorded sales of 227,000 vehicles in China, but these figures have been on a downward trajectory since then. Through strategic price reductions, Lexus achieved a modest recovery in 2024, surpassing 180,000 units in sales.

Some analysts contend that Japanese automakers risk further sales declines in the future if they do not make significant advancements in the electric vehicle sector.

The entrance of BYD Atto into the Japanese market in 2023 prompted Japanese media to liken it to “Black Ships Landing.” In response to this competitive challenge, Koji Sato, the then-CEO of Toyota, promptly instituted an “electric vehicle-first” strategy in 2023, with plans to unveil ten new all-electric models by 2026, aiming for global sales of one million units by 2030.

However, several BEV models introduced by Toyota and Lexus in China have underperformed in terms of sales. Toyota attributes this to the inability of Japanese BEV production costs to compete effectively with those of Chinese manufacturers.

Therefore, as a luxury brand operating under the Toyota umbrella, Lexus benefits from substantial profit margins and is perceived by Toyota as a platform for experimental innovations. Koji Sato envisions that the Lexus factory in China will foster the overall modernization of modular hardware, redesigned software platforms, and production processes.

In other words, Lexus aims to establish a manufacturing presence in China, integrating local suppliers and leveraging the country's high production efficiency and lower costs to mitigate BEV production expenses.

While Elon Musk revitalized Tesla's operations by establishing a factory in Shanghai, the outlook for Lexus's new facility in China may not guarantee similar success. Although Toyota is recognized as the world's largest automaker, the intent behind Lexus's establishment of a factory in China is primarily to reduce costs, contrasting sharply with Tesla's imperative to secure its viability. Thus, the two scenarios are fundamentally different.