Toyota plans to build its own electric vehicle (EV) production facility in Shanghai, China. This decision comes amid growing trade pressures following the potential return of a Trump administration, which is expected to prioritize American interests. Analysts view this move as a sign of strengthening ties between China and Japan.
On Wednesday, the China Securities Journal and other local media outlets reported that Toyota signed a comprehensive carbon neutrality cooperation agreement with the Shanghai government. Under this agreement, Toyota will establish a wholly-owned factory in Shanghai’s Jinshan District to research, develop, and produce pure EVs and batteries under its luxury brand, Lexus.
The initial investment for the Lexus plant is estimated at 107.1 billion yen (approximately $715 million). Operations are expected to begin in 2027. The facility aims to produce around 100,000 vehicles annually and is projected to create about 1,000 new jobs in the region.
This marks the second time a foreign automaker has independently built a factory in China since Tesla’s Shanghai plant opened in 2018. Toyota previously operated joint ventures with Guangzhou Automobile and Dongfeng Motor in China, while most Lexus vehicles were manufactured in Japan and exported to China.
Historically, the Chinese government required foreign automakers to form joint ventures with local companies and limited foreign ownership to 50%. However, since 2018, China has gradually relaxed these restrictions, fully removing all foreign investment limits in the automotive industry as of 2022.
China remains the world’s largest market and producer of EVs. Last year, EV sales in China exceeded 12 million units, surpassing internal combustion engine vehicle sales, which stood at approximately 11 million.
China also overtook Japan as the world’s largest automobile exporter last year. However, foreign automakers from Japan, Germany, and the U.S. have struggled in the Chinese market due to fierce competition from local companies like BYD. Additionally, geopolitical tensions between the U.S. and China, supply chain disruptions, and China’s anti-espionage laws have made foreign companies hesitant to invest further in the country.
Zilei Chen, a professor at Shanghai University of International Business and Economics and director of the Japan Economic Research Center, told Yonhap News Agency that Toyota’s decision to proceed with the factory despite these challenges reflects its confidence in China’s EV industry and commitment to the market.
He also suggested that recent improvements in China-Japan relations could help remove political obstacles to foreign investment in China.
Bloomberg Intelligence senior automotive analyst Tatsuo Yoshida noted that Toyota had previously been cautious about expanding in China due to concerns over technology leaks. However, the company has recently shifted its focus to developing products and technologies tailored to local consumer preferences.
For China, securing Toyota’s investment sends a message that its market remains open, particularly amid rising global trade pressures and the potential return of a Trump administration. It could also attract more foreign investment when many companies reconsider their presence in China. Last year, foreign direct investment (FDI) in China totaled 862.65 billion yuan (approximately $121 billion), a sharp 27.1% decline from the previous year.
Lian DeGui, a professor at Shanghai International Studies University and head of the Japan Research Center, told the state-run Global Times that Toyota’s decision to build a factory in Shanghai was mutually beneficial. He explained that Toyota’s overseas plants in Canada and Mexico could be vulnerable to U.S. tariffs, making China’s growing EV market an attractive alternative. Additionally, the investment will help China advance its EV technology and contribute to its goal of achieving carbon neutrality by 2060.
