Toyota Motor Corp., the world's biggest carmaker by value, plans to build a new car factory in China by 2006, increasing manufacturing capacity in a market where rivals are cutting prices to lure customers.
Toyota and Guangzhou Automobile Group will invest 3.82 billion yuan ($461 million) to build a factory located in the city of Guangzhou, the companies said in a faxed statement. The joint venture will have a production capacity of 100,000 units a year and build Camry models.
Toyota is adding production and introducing new models to increase its share of China's car market to 10 percent from its current 3 percent by 2010. Volkswagen AG and General Motors Corp. sell more cars than Toyota in Asia's second biggest automotive market. They have cut prices this year as demand has slowed.
"Toyota is still a second tier automaker is China and the new venture will help its efforts in narrowing the gap between itself and the top players," said Zhang Xin, an analyst with Guotai Junan Securities Co. in Beijing. "But the introduction of the Camry may not help the company as much as it may have done a year ago as everybody is cutting prices."
China's passenger car production fell 0.1 percent in July from a year ago to 171,900 units, while sales rose 3.7 percent to 170,000 units during the period, according to the Chinese Association of Automobile Manufacturers. Passenger car sales surged 76 percent last year to 1.97 million units.
"Setting up assembly and sales space in China's largest car market is essential to Toyota's expansion in China," the company said in a statement.
Tianjin FAW Xiali Automobile Co., Toyota's other partner in China, said first-half profit fell 79 percent to 74.9 million yuan after costs rose and prices fell. The two companies build Crown and Vios passenger cars together.
Volkswagen, the largest foreign automaker in China, reduced its prices by as much as 12 percent in June following General Motors' decision to cut prices for its Buick cars and wagons by an average 8 percent. Carmakers will continue lowering prices until China's vehicle costs approach those overseas, the official Xinhua News Agency said last month.
Toyota's Camry cars will face competition from General Motor's Regal, Mazda's Mazda M6 and Guangzhou Automobile's Accord, said Guotai Junan's Zhang. Toyota will have difficulty gaining market share if it prices the Camry higher than 350,000 yuan, Zhang said.
Toyota's sales in China rose 23 percent in the first six months of 2004 after it started to produce Corollas in China in February, Toyota Senior Managing Director Takeshi Suzuki said last month. The carmaker aims to sell 50,000 Corollas this year.