Toyota’s U.S. output was down 11.8%, making a slow recovery although the production of Grand Highlander and Lexus TX SUV models resumed in late October after a four-month stoppage.
China production dropped 1.6%, which was however better than a 9% decline in the previous month, as Toyota saw higher local sales of its Granvia and Sienna minivan models and the electric sedan bZ3 jointly developed with BYD (002594.SZ), opens new tab.
Toyota Faces Production Slump in U.S. and China, but Sees Glimmers of Recovery
Toyota’s production continues to struggle in key markets like the U.S. and China, despite a slow but steady recovery in certain areas. While output is down overall, the Japanese automaker is beginning to regain traction with the resumption of production on popular models like the Grand Highlander and Lexus TX in late October. The company also experienced a more modest production drop in China, driven by stronger local sales of its Granvia, Sienna, and bZ3 electric sedan. However, the production challenges Toyota is facing globally are reflective of broader issues in the automotive sector, including supply chain disruptions, labor shortages, and the ongoing semiconductor crisis.
U.S. Production Struggles: Output Down by 11.8%
Toyota’s U.S. production saw a significant dip of 11.8%, a decline that reflects both ongoing global supply chain challenges and slower recovery from earlier pandemic-related setbacks. While Toyota’s North American sales have remained relatively strong, the automaker’s ability to meet demand is still hampered by production issues.
One of the most notable aspects of the slowdown is the prolonged stoppage in the production of some key models. The Grand Highlander and Lexus TX, both critical to Toyota’s SUV and luxury vehicle lineup, were out of production for nearly four months due to a combination of supply chain disruptions, semiconductor shortages, and labor constraints. However, production resumed in late October, signaling a possible shift toward recovery, though the full impact of this resumption on Toyota’s U.S. market share remains to be seen.
The company’s U.S. plants have also faced ongoing challenges related to labor shortages and parts supply. While Toyota has worked to alleviate some of these issues by diversifying its suppliers and investing in automation, the recovery process is proving slower than anticipated. As of late 2024, Toyota has adjusted its production forecasts for the remainder of the year to account for these delays, although its market outlook remains positive in the long term.
China Production Shows Modest Improvement
In China, Toyota’s production was down by a smaller 1.6% in October, an improvement over the previous month’s 9% decline. This modest recovery in output is a positive sign for Toyota, especially considering the challenges the company faced earlier in 2024. Production issues in China were largely driven by the same factors affecting global operations, such as semiconductor shortages and supply chain disruptions, but Toyota’s ability to limit the extent of the decline indicates that its local operations may be stabilizing.
A key driver of this more positive performance was the strong demand for Toyota’s minivans, specifically the Granvia and Sienna models, which have seen increased sales across China. Additionally, Toyota’s push into electric vehicles (EVs) in China is bearing fruit, with the bZ3 electric sedan, developed in partnership with BYD, seeing strong sales in the country. The bZ3, one of Toyota’s flagship electric models, is part of the company’s broader strategy to expand its EV offerings and meet China’s growing demand for electric vehicles.
The production of Toyota’s bZ3 sedan, which resumed alongside other popular models, is a critical part of the automaker’s long-term strategy in China, where competition in the electric vehicle sector is fierce. As the Chinese government continues to push for greater EV adoption, Toyota’s ability to ramp up production of the bZ3 and other electric models could prove pivotal in maintaining its position in the Chinese market.
The Road to Recovery: Challenges Ahead
While Toyota is making strides in recovering its production levels, particularly in the U.S. and China, the company continues to face significant hurdles. The global semiconductor shortage remains a critical challenge, as do logistical issues tied to supply chain disruptions. Additionally, labor shortages and rising costs for raw materials are putting pressure on Toyota’s profit margins and its ability to meet production goals across its various markets.
In North America, the company has also been adjusting to the shift in consumer preferences towards SUVs and trucks, as well as a growing demand for hybrids and electric vehicles. Toyota’s ability to meet this demand will depend largely on its success in ramping up production for its high-demand models, including the Highlander, Lexus TX, and Grand Highlander.
In China, Toyota must contend not only with its production and supply chain issues but also with increasing competition from local Chinese automakers like BYD and NIO. While Toyota’s partnerships and investments in local production facilities have helped, the rise of homegrown electric vehicles in China presents a long-term challenge for the company’s market share.
Key Takeaways: Toyota’s Path Forward
- U.S. Recovery Underway: After a four-month stoppage, production of the Grand Highlander and Lexus TX has resumed, signaling a positive recovery in Toyota’s U.S. output. However, challenges remain, particularly in labor and parts supply.
- Improved Performance in China: While overall production in China dropped 1.6%, this was an improvement from the previous month’s 9% decline. Toyota saw strong local sales, particularly for the Granvia and Sienna, as well as its electric bZ3 sedan developed with BYD.
- Ongoing Supply Chain and Production Challenges: The semiconductor shortage and rising raw material costs continue to hinder Toyota’s ability to fully recover production across both markets. However, the company is focusing on diversifying its supply base and ramping up automation to address these issues.
- Strategic Shifts Toward EVs: The strong sales of the bZ3 electric sedan in China highlight Toyota’s increasing focus on electric vehicles. The success of its EV models will be crucial for the company as it seeks to capture a larger share of the growing EV market, particularly in China, where competition is intensifying.
Toyota’s global production in the U.S. and China has shown signs of recovery, but challenges remain. The 11.8% production drop in the U.S. and the 1.6% decline in China reflect the ongoing hurdles the company faces in meeting global demand, yet the resumption of key model production and the strong sales of Toyota’s electric vehicles indicate a positive outlook for the future.
Toyota’s ability to navigate the ongoing supply chain issues and accelerate its electric vehicle production will be key factors in its recovery. As the company adapts to these challenges and shifts its focus towards EVs, it is well-positioned to capitalize on future growth opportunities, but the next few months will be critical in determining whether Toyota can fully recover and meet its global sales targets.