Lexus Delays Assembly Line in China

By adpock - July 22, 2015

lexus logo

If you’ve been watching the auto biz lately, you know that plenty of marques — Infiniti, Cadillac, Jaguar Land Rover… — are not just selling automobiles in China, they’re also producing them. Well, Lexus doesn’t always do the same thing as everyone else.

Toyota is delaying plans for a Lexus assembly line in China. According to Reuters, who spoke with two Toyota executives in China (who wished to remain anonymous), there was serious discussion about building both the ES and RX in China. But now, those plans are on hold. There are a number of reasons for the change of heart.

One of the reasons for the delay is that the Chinese auto market has slowed down significantly. The first half of the year has shown a growth rate of just 1.4 percent.

Another factor is the low price of the yen, which has been falling consistently against the dollar since 2013. As such, production costs are significantly lower in Japan, making profitability significantly higher. Couple that with the rising price of Chinese labor costs, and the math makes even more sense.

Toyota also wants to see an increased Lexus presence on the streets of China before beginning production there, specifically more of the high-end cars, like the flagship LS. Currently, the ES, NX, and RX account for upwards of 85% of the Lexus cars sold in China. And the marque is only projected to sell 83,700 vehicles in the country this year, far behind its German luxury competitors.

Yet another reason Toyota is hesitant about building in China is that in order to do so, Lexus would have to partner up with a joint venture Chinese company. Such a partnership could hamper the way Lexus does business.

Regardless of these factors, Toyota still plans on building Lexus cars in China, but not for at least a few years.

“Toyota’s committed to China, and we will eventually start producing Lexus cars here. There’s no doubt,” said one of the executives. “But we need to do a few things before we take the plunge.”

We’ll be watching, as will the rest of the automotive world.