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Toyota México: Evolution Toward CASE Mobility

By Alejandro Enríquez | Mon, 07/12/2021 - 10:20

Q: How do you bring Toyota’s global leadership to the Mexican market?

A: Mexico is part of the North American region, which is very relevant for Toyota Global thanks to important markets such as the US. We are about to celebrate 20 years in the Mexican market, which we entered with a long-term vision and commitment. We started with Toyota Motor Sales Mexico and then built our first plant in Baja California in 2005, which manufactured the Tacoma. Given our success in Mexico, the company decided to establish a second plant in Guanajuato, also for Tacoma, and we later developed a joint venture at Mazda’s plant in Salamanca.

Q: How is Toyota transforming itself to become a mobility-oriented company?

A: The global automotive industry is undergoing the kind of transformation that takes place once in a hundred years. Toyota has decided to become a mobility company, although automotive will continue to be at the core of our business. We understand that if a person can move, they can be happy and achieve the impossible. You will see more of our vision for achieving the impossible at the Olympic games.

Our evolution toward becoming a mobility company is based on the four pillars of CASE: Connected, Autonomous, Shared, and Electric. The electric element does not always imply a fully battery-electric vehicle. At Toyota, we believe we should offer different electric options for our customers. Toyota now has four electrified vehicles. First, there is the hybrid-electric vehicle (HEV). It is now in its third generation and serves markets that may lack charging infrastructure, such as Mexico. We also have a plug-in hybrid (P-HEV) similar to the regular hybrid and can be more efficient in reducing emissions. We have a battery-electric vehicle (BEV), which is the most popular in the media but will not necessarily dominate global markets. Finally, our Mirai model introduces a fuel-cell electric vehicle to the market, a hydrogen-based electric. This is a more sophisticated electrification strategy.

Q: What role do EVs play in Toyota's global strategy toward carbon neutrality?

A: Different automotive players are introducing their own environmental goals. At Toyota, we introduced our environmental challenge in 2015 and we have been innovating technologies for over 40 years. The Toyota Global Challenge aims to reduce CO2 emissions by 90 percent by 2050 throughout the vehicle’s entire life cycle, from its manufacturing to its disposal. Our life-assessment cycle measures the entire carbon footprint of the vehicle. By 2025, we will have an electric twin of every one of our models in the world. By 2030, we will sell more electrified vehicles than ICE vehicles. We are happy about our results. Prius for instance has been the ultimate example of the role we play in the hybrid market.

Q: How did you help your dealership network better address the impact of the pandemic?

A: Our dealers are great business partners with whom we maintain close communication, with absolute transparency and coordination. Our sales team, Toyota Motor Sales de México, did an outstanding job to adapt to the new normal. We enabled digital sales channels to take leads to our dealership network. These, among other strategies, helped us deliver healthy results and maintain our fourth-place ranking for sales in the Mexican market.

Q: Chip shortages are a great challenge for the automotive sector in 2021. How has the shortage affected Toyota’s production?

A: Toyota is a company that learns from its mistakes and that makes us stronger. There was a serious earthquake in Japan that hindered many of the critical suppliers of our manufacturing operations a few years ago. At that moment, we were forced to innovate in our supply chain and we have learned from that experience. We also maintain close relationships with our suppliers and we continue to work with them and the purchasing areas to address the current chip shortages. We have only experienced minor affectations because of the situation.

Q: What potential does the North American region have to develop semiconductor suppliers?

A: It would be beneficial for the region to have a cohesive strategy to establish semiconductor plants in North America. The US is really interested in achieving that goal and investors will assess which countries would be more competitive for this. Having said that, semiconductor production is really complex; it is not about just building a new plant. Developments take years to achieve profitability, which is one reason why there are not many semiconductor plants in the world.

Q: What have been Toyota's strategies to meet USMCA's rules of origin in LVC and RVC?

A: We have been in North America for over 60 years. Our strategies have always been to produce where vehicles are consumed and to purchase where we produce vehicles. This has been part of our philosophy for many years and has allowed us to develop a strong and sophisticated manufacturing footprint throughout the years.

At the moment, we have more than US$30 billion invested in North America, creating over 36,000 direct jobs. When we ramp up operations in a new location, we bring our suppliers to North America rather than import components. As a company with 15 plants in North America and a 60-year history, we were in an advantageous position to meet USMCA. That being said, USMCA's new rules of origin introduce changes in integration percentages that we will address. As always, Toyota will comply with all laws and regulations that are applicable.

Q: What are the keys that suppliers must take into account amid industry trends?

A: It is not as simple as listing all elements to be taken into account. Manufacturing a vehicle is complex, given all the components that go into them. We work closely with our customers because we consider them to be key business partners. In many cases, we have our suppliers within our manufacturing plants and we work together on the transformation processes the industry is living, whether related to electrification or USMCA’s regional integration processes. Close communication is the secret.

Q: What potential do EVs have in the Mexican market?

A: The potential for producing these vehicles in Mexico is enormous; the challenge is to set the stage to make the most out of that potential. We have a really large market just next door that has introduced really ambitious electrification plans. US President Biden is strongly committed to tackling climate change and this situation will result in aggressive public policies that will accelerate electrification processes.

This is a great opportunity but Mexico needs to do its homework and design reasonable public policies that are coherent with US policies to take advantage of these opportunities. This is relevant because manufacturing BEVs is not the same as manufacturing ICE vehicles. The former requires additional suppliers and components, so public policies should be comprehensive. This requires a long-term strategy as certainty is essential to investors. I hope the Mexican government takes this opportunity to bring electric vehicle production into the country.

Q: What are Toyota's priorities for the Mexican market in the coming years?

A: We will continue our efforts toward electrification in the Mexican market. We have sold more than 65,000 hybrid vehicles in the country. Our goal was that at least 20 percent of the vehicles sold this year in the country are hybrid or electric. We surpassed that goal in the first four months of the year, with EV sales at around 30 percent. Many flashy announcements regarding electrification can be made but, in real volumes, Toyota is the company that has sold more electrified vehicles in the history of humanity, even more than all others combined.

We are undergoing a transformation process in the automotive industry and Mexico has the unique opportunity to jump into that transformation. Toyota is interested in working with all stakeholders and the Mexican government is interested in grasping those opportunities.

 

Toyota Motor Corporation is the world’s largest automotive company by production volume. Toyota Motor de México encompasses Toyota’s plants in Baja California and Guanajuato, as well as Toyota Motor Sales de México. The company held fourth place in market share and eighth in production volume in Mexico in 2020.

Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst