BEIJING// – When Akio Toyoda, head of Japan’s largest carmaker Toyota, delivered a speech in English at the prestigious Tsinghua University in Beijing, he captured the attention of the students.
“I need people like you,” the chief executive of Toyota said as he unveiled plans to set up a joint research institute for green technology. “The truth is, I believe China will soon be leading the automotive industry in terms of technology and innovation.”
Since his speech in April, Toyota has signed deals with China’s BYD and Contemporary Amperex Technology (CATL) to develop batteries for electrified vehicles and unveiled a $600m investment in the country’s ride-hailing group Didi.
Last month, it teamed up with Chinese start-up Pony.ai to carry out a pilot programme for autonomous driving and in July it came to light that it had participated in Chinese internet company Baidu’s self-driving car programme Apollo.
Toyota’s China pivot comes as global carmakers from Ford, Peugeot owner PSA and General Motors are wrestling with a sharp downturn in the world’s largest car market.
The Japanese group has bucked the trend with sales in China rising 12 per cent to 902,000 vehicles between January and July compared with the same period last year, while the broader market fell 11.4 per cent.
Toyota, which has long lagged behind rivals such as Volkswagen and GM in China, has benefited from a thaw in relations between Tokyo and Beijing as the escalating US-China trade dispute has brought the two Asian neighbours closer together.
But analysts say the intensifying trade war between Beijing and Washington has also thrown up problems for the Japanese group.
People close to Toyota said company executives have toned down, at least publicly, the promotion of their big push in China for fear of angering President Donald Trump, who has called for more jobs to be created in the US.
Indeed, a month before Mr Toyoda’s speech in Beijing, the Toyota boss stressed in Washington that the carmaker had increased its five-year investment pledge in the US made in 2017 to $13bn from $10bn.
Regardless of the direction we go, we will never leave [the] United States. I love America,” Mr Toyoda said.
Toyota, like other carmakers, also faces the delicate task of separating China from its broader global strategy to meet specifications in communication, IT and software that are unique to Beijing.
Washington and Beijing are unlikely to unify such standards, which are critical in developing and testing self-driving electric vehicles, while the two rivals continue their battle over technology and trade.
“Due to the business environment of the China market, it is particularly important for Japanese and European carmakers to pursue a strategy for China that is independent from its broader global strategy, and to have a more balanced portfolio between the US and China markets,” said Zhou Lei, a partner at Deloitte Tohmatsu Consulting in Tokyo.
Tang Jin, senior research officer at Mizuho Bank and an expert on the Chinese car industry, added: “Considering that the US-China dispute will probably last a long time, it is a costly strategy but companies like Toyota need to prepare for two separate standards in the US and China.”
Toyota is working on its own autonomous technology through its artificial intelligence arm, Toyota Research Institute, and it has also invested $500m in US ride-hailing group Uber to collaborate on self-driving technology.
But it faces the problem of not being able to sell self-driving vehicles in China unless it finds a local partner, similar to other international car groups, because the government has only issued licenses for digital maps to Chinese companies.
According to consultancy McKinsey, China has the potential to become the world’s largest market for autonomous vehicles, which are expected to make up just over 40 per cent of new vehicle sales in China by 2040.
Part of Toyota’s recent focus on China, where it only has a 5 per cent market share, is driven by need.
It remains far behind German carmakers such as BMW, Audi and Mercedes-Benz, which have all begun testing autonomous vehicles on Chinese roads and invested heavily in lobbying activities in an effort to ease Beijing’s sensitivity about security and data access.
Despite its lagging position, the potential rewards for Toyota are immense.
Company executives see China as one of the few markets where it has the potential to sell its broad line-up of electrification technology used in hybrids, electric cars, and fuel cell vehicles. Beijing wants to become the world’s champion in fully electric vehicles by 2025.
“Especially in this market, China, the speed of change is very, very fast,” Mr Toyoda said in his April speech. “We have to make a lot of effort to follow the changes in China. That’s the biggest issue for us.”