Toyota to spend $1.5 billion on Mexican plant, 3rd shift in China

Article by Christian Andrei, on April 22, 2015

Toyota Motor Corp. plans to spend almost $1.5 billion on a new plant in Mexico and a new line in China to support sales growth in key markets as well as to undergo a worldwide overhaul in how it builds vehicles. For three years, Toyota had not had any major expenses for expansions.

The automaker’s new facilities will make use of more affordable manufacturing processes and be the pioneer among automakers around the world in how they design and build the brand’s new modular platforms from the ground up. Taken together, these expansions will increase the brand’s annual worldwide capacity by 300,000 vehicles, from about 9.8 million units.

This will give the automaker more leeway to achieve a tight global utilization rate that is nearing 90%. In comparison, this rate was 70% in 2009. The $1 billion Mexico plant is found in the central state of Guanajuato and will start to run in 2019. It will build the next-generation Corolla small car and has an annual capacity of 200,000 vehicles.

In a statement, Toyota said that it will allocate 52.2 billion yen ($440 million) to add a third line to its factory in Guangzhou, China. Set to open in 2017, this plant will add 100,000 units of capacity. The investments in these plants are part of a major shift in Toyota’s manufacturing strategy targeted at reducing the resources required to build new vehicles by 20%.

Part of Toyota’s plan is to develop a new generation of platforms that will be used on half of Toyota’s lineup by 2020. These investments break the three-year “intentional pause” on greenfield sites that President Akio Toyoda asked for in April 2013.

During this pause, Toyota pushed its existing plants to increase their capacity while developing the new modular vehicle platform and efficient manufacturing processes. Toyota took this time to concentrate on cutting costs and enhancing quality.

In a statement, Jim Lentz, CEO of Toyota North America, said that new opportunities are created from the “strategic re-thinking” of the method of creating its products as well as the determining the locations of its plants.

The Mexican plant starts to operate in time for the production of the new Corolla for the following model year. The plant will have about 2,000 workers and will be capable of building 200,000 vehicles annually.

Toyota has yet to reveal what its new China line will produce. Currently, the annual capacity of the Guangzhou factory’s two lines is at 360,000 units. Toyota’s local joint venture partner Gaungzhou Automobile Group Co. oversees these two lines.

These lines roll out many vehicles, including the Highlander SUV, Camry sedan and Yaris small car. With this expansion in China, the total capacity of Toyota will be at 1.1 million units. In 2014, Toyota’s five plants in China built 960,000 vehicles.

The Corolla, which will be built in Mexico, will have the same modular platform as the other small, front-wheel-drive cars in Toyota’s range, which include the upcoming new Prius and the Lexus CT.

Toyota is referring to its plans as the Toyota New Global Architecture (TGNA) wherein the production of similarly sized vehicles is grouped together. It is comparable to modular platforms that Volkswagen Group and Renault-Nissan Alliance use.

Toyota to spend $1.5 billion on Mexican plant, 3rd shift in China Toyota thinks that by raising their shared parts and making the manufacturing process simpler, it will reduce the investment required for a new production line by 50%. In addition, the price of constructing a new plant like the one in Guanajuato will also be down by 40%.

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