Toyota has announced plans to build a research, development, and production company for Lexus electric vehicles and batteries in Jinshan District, Shanghai, and plans to start production in 2027.
“China has a complete electrification and intelligent technology industry chain,” says Ji Xuehong, Director and Professor of the Automotive Industry Innovation Research Center at North China University of Technology, “and stablishing a factory locally will allow Toyota to deeply integrate into China’s industry chain, quickly access advanced electrification technologies and high-quality parts resources, and thereby enhance the overall competitiveness and price advantage of its products.”
Localization will also enhance Lexus’ export capabilities, he says. Production in China can meet domestic demand, also reduce costs and improve the competitiveness of products in the international market.
In recent years, the domestic luxury car market in China has been shrinking. Data released by the Passenger Car Market Information Joint Committee of the China Automobile Dealers Association shows that in December 2024, domestic luxury car retail sales reached 290,000 units, a year-on-year decrease of 8%. The retail market share of luxury brands was 10.9%, down by 2.5% compared to the previous year.
“Regarding the current market situation, it is impossible not to feel the pressure,” says ,” said Li Hui, Executive Deputy General Manager of Lexus China. “This pressure is not only about the decline in car sales but also stems from the constantly changing demands of Chinese customers for different car models. How to quickly adapt and adjust, from product development to service and marketing, in order to keep up with the rapid changes in China, is what we think about the most and is also our greatest challenge.”
In fact, after Toyota shifted to its new management system, Lexus has taken on the mission of being the pioneer of Toyota’s electrification, especially in the Chinese market. Lexus sells 12 car models in the Chinese market, but only the Lexus RZ is a pure electric vehicle; plug-in hybrid models include the RX 450h+ and NX 400h+.
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PSR Analysis. The impact of the new production on the Lexus brand could be significant. The fact that the company will be wholly owned means it can fully control production and decision-making without input from a joint venture partner, which is expected to enhance efficiency and profitability.
The move could intensify competition in China’s luxury car segment, especially for the German trio BBA (Mercedes-Benz, BMW, and Audi).
Localization typically drives a reduction in prices, which could benefit consumers. Given China’s current encouragement of new energy vehicles, Lexus is likely to accelerate its electrification transformation during the localization process, introducing more new energy models. This aligns with domestic policy orientations and can also speed up Toyota’s global electrification transition.
After localization, Lexus electric vehicles (EVs) in China will directly compete with Chinese high-end electric car brands such as NIO, Lixiang, and BYD, especially in the price range of US$40,000 – US$70,000 (300,000 to 500,000 yuan). The brand premium and reputation for reliability that Lexus enjoys may cause some consumers to switch to Lexus. Relying on Toyota’s electrification technologies, such as the e-TNGA platform and solid-state battery research, Lexus may gain advantages in certain areas, such as range and quality control. This could in turn force Chinese carmakers to accelerate their technological development. PSR
Jack Hao is Senior Research Manager – China for Power Systems Research
