Toyota's U.S. operations: full-scale release of Toyota brand TNGA and Lexus brand GA-L
Increased production of SUVs and pickup trucks
|Exterior of the new LS500. Thanks to the newly developed GA-L platform, Lexus has been able to create a four-door sedan with coupe styling. (Photo: Toyota)|
This report will cover Toyota's U.S. operations, its product plans, increased production of its light trucks, and the degradation of profitability of its North American business.
As part of the group's product plans, TNGA-based vehicles will be released under the Toyota brand, while the Lexus brand will release vehicles utilizing the GA-L platform designed for FR unibody vehicles. Vehicles such as the Toyota Camry, Lexus LC, and Lexus LS will be released in succession, all of which have increased flexibility during the production process, as well as achieving low fuel consumption and sporty driving and styling thanks to a low center of gravity. Additionally, the OEM will release vehicles lacking in its existing lineup, such as sub-compact crossovers (Toyota C-HR, Lexus UX Concept) and a passenger vehicle-based SUV with three rows of seats (Lexus RX).
In recent years U.S. market demand is rapidly shifting from passenger vehicles to light trucks, such as SUVs and pickup trucks. Toyota's strength was conventionally in passenger vehicles, so it lacks the capability to supply light trucks and is rushing to increase production of such vehicles for the U.S. in Japan, Mexico, and other areas. Toyota's North American operating income has sharply decreased since the second half of FY 2016, and halved for the period from April to June 2017 on a year-over-year (y/y) basis (JPY 89.2 billion). Causes for this drop can be attributed to intensifying price competition due to stagnant growth in the U.S. market, as well as increased incentives for passenger vehicle models.
Toyota's strategy for EVs and PHVs: Joint EV development with Mazda (September 2017)
(See the following for the powertrain featured on new vehicles in this report)
JSAE 2017: Toyota exhibits newly developed powertrain (July 2017)
Toyota brand's North American model plans
The Toyota brand is expecting its new models based on the TNGA platform, the C-HR sub-compact crossover (released in April 2017), and new Camry (scheduled for release in autumn 2017) to perform well. TNGA vehicles have a lower center of gravity giving them sporty driving and style, and increasing production flexibility.
Toyota showcased its Concept FT-4X at the New York Auto Show 2017 (held in April), which shares a common platform with the C-HR. The Concept FT-4X is a crossover model suited for outdoor activities, and due to the amount of attention it received at the auto show Toyota may consider releasing the vehicle.
Of the models featured in the following model plan chart, those in bold are expected to make the transition to the TNGA platform in the next update. Vehicles that are not expected to make the transition to TNGA and vehicles with a body-on-frame structure, which have a long life cycle, are scheduled for updates at the conventional pacing.
Toyota brand's North American model plans
|1st half||2nd half|
Prius Prime (PHV)
Successor model to Supra
|Source: Automotive News on July 31, 2017
(Note) 1. Items in bold blue font are expected to be TNGA based vehicles.
2. The Corolla is a sedan, whereas the Corolla iM is a hatchback.
<C-HR and the Concept FT-4X>
In June 2016 Toyota released the C-HR, marking an entry into a previously unexplored sub-compact crossover market. Based on the TNGA C segment platform shared with the Prius, the C-HR U.S. specification model features a 2.0L engine and CVT. Points such as the tuning of shock absorbers give driving performance rivaling that of European cars. The new model is produced at the maker's plant in Turkey.
At the April 2017 New York Auto Show Toyota exhibited the Crossover Concept FT-4X, which shares a platform with the C-HR. It has gained attention as a model suitable for outdoor activity targeting young drivers. It is expected to be particularly appealing to male consumers, and the decision for release will likely be made based on market reaction to the vehicle.
|Left image: The sub-compact crossover C-HR (from left: idea sketch, initial model, final product).
Right image: The Concept FT-4X, exhibited at the New York Auto Show in April 2017, promoted as a crossover for outdoor activities (Photo: Toyota)
Toyota's Camry has led the U.S. passenger vehicle market in sales for 15 consecutive years as Toyota's global mid-size sedan. The model is sold in 100 or more countries and regions, and has achieved over 18 million unit sales.
The new Camry was redesigned and updated from scratch, with the slogan of "unprecedented change". The new Camry is the first model to use TNGA, and achieves a more comfortable driving experience thanks to improved vehicle stability and weight balance due to the fact that it takes all of its parts, including powertrain components such as the engine and transmission, from the new platform. By dropping the engine and passenger layout Toyota has created a design that incorporates a low center of gravity.
The North American specification model will be released in autumn 2017. The initial release will feature a newly developed four-cylinder, 2.5-liter engine mated with an eight-speed automatic transmission, followed by another new six-cylinder, 3.5-liter engine and a model featuring a hybrid system. With regards to safety, all models feature the Toyota Safety Sense P collision avoidance support package as standard.
Although passenger vehicle sales are declining in the North American market, in 2017 both the Camry and Honda's Accord were released. After 2018, Nissan will release the Altima, and Hyundai will release the Sonata. With several updates to mid-size passenger vehicles, OEMs anticipate consumers will regain interest in passenger vehicles, and hope people will be reminded of the pure enjoyment of driving that has traditionally been seen as lacking in SUVs.
Production of the new Camry begins at the Georgetown plant in Kentucky
Toyota invested USD 1.3 billion to upgrade its Georgetown plant in Kentucky, and began production of its new Camry in June 2017. The model is the first TNGA vehicle to be produced in the U.S.
The TNGA platform increases production efficiency and flexibility, making it extremely beneficial as consumer preferences diversify. In recent years Toyota has struggled to keep up with the transition toward light trucks in the U.S. market, but because TNGA vehicles have a common underbody construction the automaker can flexibly produce vehicles regardless of whether they are passenger or crossover types.
Conventionally additional process stages were needed to produce different engines, but with the new system various engine types can be assembled on a single line, including four-cylinder, six-cylinder, and even hybrid engines. Radiators are also prebuilt into the engine, eliminating the need for installment.
Thanks to modular production, the assembly process can be conducted in a smaller space, thereby expanding the plant's production capacity and allowing for the flexible production of new models.
The annual production capacity of the Georgetown plant is 550,000 completed vehicles and 600,000 engines. There are three assembly lines, one each for the Camry and Avalon, and another that was added for the Lexus ES in 2015. The Avalon and ES are expected to undergo full redesigns in 2018.
Lexus brand's North American model plans
Starting with its Lexus LC/new LS, scheduled for release in 2017/2018, Lexus has adopted its own version of the TNGA platform, the rear-wheel drive GA-L (Global architecture for luxury vehicles) platform. The GA-L platform will be utilized for the brand's FR monocoque body vehicles, including compact models.
Lexus will release a sub-compact crossover (UX Concept) and a passenger vehicle based SUV with three rows of seating (RX), two types currently missing from its lineup. The high-performance F series, currently only available in two models (the GS F and RC F), is also expected to feature more models in its lineup. Additionally, Lexus is also considering the release of a premium EV to compete with Tesla and German OEMs.
Lexus brand's North American model plans
|1st half||2nd half|
Three-row seat RX
|Source: Automotive News July 31, 2017
(Note) 1. Items in bold blue font are expected to be GA-L based vehicles. The new ES is speculated to feature the TNGA platform used by the Camry and Avalon (although there are reports that the vehicle may be based on the GA-L platform).
2. The UX is a new sub-compact crossover model, and is expected to use the same TNGA platform as the C-HR.
The LC is Lexus' new flagship coupe. Thanks to the GA-L platform Lexus was able to give the model a lower height and center of gravity, as well as a wide profile. The LC features a front mid-engine layout, placing heavy components such as the engine near the center of the vehicle. Additionally, the LC makes use of lightweight CFRP and aluminum materials, further lowering its center of mass.
The LC was released in Japan in March 2017, and May 2017 in the U.S. Prices for the gasoline engine model (featuring a 5.0-liter V8 and Direct Shift 10-speed automatic transmission) started at USD 92,000, while the hybrid engine model (featuring a 3.5-liter V6 and multistage hybrid transmission) started at USD 96,510. The LC is produced at an assembly line exclusively used for the model: the Motomachi plant.
|The luxury coupe LC500 sports an aggressive style with its low center of gravity, low height, and wide profile. (Photo: Toyota)||The cockpit and interior of the LC500. (Photo: Toyota)|
The fifth generation new LS will be released in autumn 2017 in Japan, and in the first half of 2018 in the U.S. The powertrain for the LS500 is composed of a 3.5-liter twin turbo V6 engine mated with a Direct-Shift 10-speed automatic transmission, while the LS500h features a V6 3.5-liter 2GR-FXS engine combined with a multistage hybrid system.
With the newly developed GA-L platform, Lexus has created a profile that lowers the center of gravity. In order to create an innovative coupe styling that separates itself from conventional four-door sedans, a six-light cabin design (three windows on each side of the car) was utilized in the LS (see left image below).
The interior design of the front seating has a horizontal upper section for the instrument panel and door trim to give a sense of expansiveness, whereas the lower section features a thick, soft console armrest, creating a comfortable sense of security (see right image).
With regards to safety, the LS is equipped with the Lexus Safety System + A, featuring several technologies that are the first of their kind. In addition to its conventional Lexus Safety System + preventive safety package, the LS is equipped with the world's first active steering assist feature and the Front Cross Traffic Alert, which helps prevent collisions at intersections.
Furthermore, the LS is equipped with the Lexus CoDrive advanced driving assist technology, which opens the door to autonomous driving. Lexus added the Lane Change Assist feature to its basic functions of Radar Cruise Control and Lane Tracing Assist, and the three systems will work in tandem to achieve steering support that is in line with the driver's intentions, as well as providing lane-changing support on highways or motor-vehicle-only roadways. Although the system takes over several operations, making it equivalent to level 2 autonomous driving technology, Toyota states that it is currently just a technology that creates the potential for autonomous driving.
|Exterior of the new LS500. Thanks to the newly developed GA-L platform, the vehicle has an innovative coupe styling that separates it from conventional four-door sedans. (Photo: Toyota)||Interior of the new LS500 (Photo: Toyota)|
The UX Concept is a new sub-compact crossover concept presented by Lexus at the Paris Motor Show in September 2016. The vehicle balances a compact body with comfort, and aims to meet the expectations of sophisticated urban dwellers. The UX Concept is expected to utilize a common platform with the Toyota C-HR.
|UX Concept (Photo: Toyota)||The front and rear seats in the UX Concept feature different interior styling. (Photo: Toyota)|
Sales and production in the U.S.: Production of light trucks ramps up to compensate for lack of supply
|The Indiana plant will increase production of the Highlander SUV. (Photo: Toyota)|
Toyota's light vehicle sales in the U.S. peaked in 2015 at 2.5 million units, and the maker has slowly declined in sales and market share ever since.
Demand in the U.S. light vehicle market has been shifting toward light trucks such as SUVs due to the decline in gasoline prices. In 2014 the ratio of light trucks exceeded 50%, and reached 63.4% in the period from January to August 2017. Toyota's best-selling vehicle in the U.S. changed from the Camry in 2016 to the RAV4 over the same period in 2017 (Camry: 248,000 vehicles, RAV4: 270,000 vehicles).
Toyota's light truck sales ratio during the same period has remained at 57.3%. Sales of passenger vehicles, such as Toyota mainstays like the Camry, Corolla, and Prius, have all decreased in sales y/y. Sales of all Lexus passenger vehicle models have likewise decreased y/y. On the other hand, the production of Toyota's best-selling light trucks has not caught up to demand. In particular, the Tacoma compact pickup truck is manufactured only in North America, meaning it cannot adjust to demand via imports from Japan, and is losing its market share to the Chevrolet Colorado and GMC Canyon. Toyota will increase production of light trucks for the U.S. market at plants in Japan, the Indiana plant, and the Tijuana plant in Mexico. Additionally, Toyota announced that the new plant currently being constructed in Guanajuato, Mexico, would produce the Tacoma instead of the Corolla as initially planned.
Increased production of light trucks for the North American market
|Japan||The Prius is produced at the Tsutsumi plant. Toyota will downsize its production plan for the Prius, and has halted its plans to produce the vehicle at its Takaoka plant as scheduled from autumn 2016, instead increasing production of the RAV4.|
|Indiana||Toyota will invest USD 600 million in its Indiana plant for a total upgrade, and will increase the production capacity of its Highlander by 40,000 vehicles in the autumn of 2019. This project is part of Toyota's plan to invest USD 10 billion in the U.S. over the next five years, as announced in January 2017.|
|Texas||The Texas plant, which produces the Tacoma and Tundra, began operating on Saturdays from the spring of 2016.|
|Mexico (Tijuana)||Toyota plans to increase the production capacity of the Tacoma at its Tijuana plant in Mexico from its current 100,000 vehicles to 160,000 vehicles (based on a triple-shift system) by the end of 2017/beginning of 2018.|
|In line with its joint plan with Mazda to construct a new plant in the U.S., Toyota's new facility in Guanajuato, Mexico, will produce the Tacoma instead of the Corolla as initially planned (the Corolla will be produced at the new plant constructed in the U.S.). In order to reconstruct its parts supply network, Toyota has delayed the start of production from mid-2019 to the first half of 2020.|
|Source: Toyota's press release January 25, 2017, Automotive News August 7, 2017/August 14, 2017|
Toyota's (including Lexus) sales in the U.S.: Passenger cars and light trucks
|Unit sales||Passenger car||1,241,979||1,294,557||1,318,168||1,303,048||1,147,557||784,977||686,069|
|Toyota's market share||14.3%||14.3%||14.4%||14.3%||14.0%||13.9%||14.1%|
|U.S. light vehicle market: Passenger cars and light trucks|
|U.S. light vehicle total||14,492,398||15,603,678||16,531,070||17,482,841||17,539,052||11,676,422||11,358,405|
|Source: Automotive News|
Operating losses in North American
Demand in the U.S. light vehicle market has declined by 2.7% for the period from January to August 2017. Pressure has been put on the operating income of various OEMs as incentives due to intensifying competition have decreased earnings, coupled with the decline in prices for used vehicles after their lease period. Toyota lowered its sales forecast for the U.S. in FY 2017 by 40,000 units from 2.82 million as announced in May, to 2.78 million in August (consolidated vehicle sales estimates have remained at 8.9 million vehicles, as adjustments will be made in other regions).
Toyota's geographical operating income in North America peaked most recently in 2014 at JPY 584.5 billion, and has been on a downward trend since. In particular, the OEMs operating income declined in the second half of FY 2016, and during the April to June 2017 period the automaker's operating income halved y/y to JPY 89.2 billion, with its operating margin dropping from 6.5% to 3.3%. Causes for this can be attributed to an increase in various sales expenses.
Geographical Operating Income: North America
(in billions of JPY)
|Source: Toyota's Financial results
(Note)Geographical operating income in North America is defined as the operating income from sales of models produced in North America. Earnings from imports from Japan are categorized under the Japan geographical segment. The actual degree of contribution by the North American operations is roughly 40% of the consolidated operating income for the period FY 2014-FY 2015.
Sales forecast by LMC Automotive:Toyota Group's sales in 76 countries will be 10.32 million units in 2020
(LMC Automotive Quarter 2 2017)
According to LMC Automotive's sales forecast (Quarter 2 2017), Toyota Group's light vehicle sales in 76 countries in 2017 will be 9.97 million units, up 1.0% from 2016. The YoY growth rate between 2017 and 2020 will be moderate at 0.6%-1.7%, and Group's sales in 2020 will be 10.32 million units, up 4.6% from 2016.
The US, Toyota Group's largest market, will remain its number one position by country, however, sales in the US in 2020 will be 2.32 million units, down 5.5% from 2016.
In 2016, for the first time since 2011, the Toyota Group's market share slid below 14% at 13.97% of the US market. In 2017, LMC Automotive expects sales to fall again - this time, by 3.0%. Much of the loss will come from the Camry and the Corolla as well as the Lexus Cars.
The group numbers are expected to keep declining, losing almost a full percentage point of market share by 2024 from 2017. Although LMC Automotive forecasts the group to remain the third largest in the US behind General Motors and Ford, the research company does not foresee Toyota's market share returning to the 14%‐range. This will be driven by a combination of consumer preference for SUVs affecting the Camry and Corolla, gas prices and increased competition in the hybrid arena and fiercer competition in the Premium segments affecting Lexus. Besides all that, Toyota is not expected to add any high‐volume product to its already diverse portfolio.
In Japan, Toyota Group's second-largest market, Group's sales in 2018 will be 2.27 million units, up by 4.5% from 2016, however, will decline to 1.91 million units in 2020, down 12.2% from the same year 2016.
In April 2017, the YTD average SAAR of overall Japan's market was 5.18 million units (versus 4.9 million units in April 2016). Japan's stable economy has supported a stronger-than-anticipated growth in the market. However, as for medium- and long-term outlook, LMC Automotive's forecast remains unchanged in that the vehicle market is expected to shrink gradually and eventually plateau at circa 4.4-4.5 million units, mainly due to demographic factors.
In China, the Group's sales in 2020 will be 1.28 million units, up only 3.0% from 2016. China's overall light vehicle market started 2017 with a weak note, and ended April with a total of 2.04 million units sold, 3% down YoY and 4% up YoY YTD.
Light vehicle sales growth in China is expected to slow gradually in the medium- and long-term not only due to the increasingly higher sales bases in YoY comparative terms, but also as a result of the growing pressure from the overall number of vehicles owned in the country.
Looking at the forecast sales numbers by country, the most remarkable growth of the Group's sales is seen in India. The Group's sales in India in 2020 will be 277k units, more than doubled from 2016.
LMC Automotive forecasts that LV sales in India will expand at a CAGR of 8% over the next seven years, in spite of the challenges: the implementation of the new safety regulations to be introduced in October 2019 and of the Bharat Stage VI, which is equivalent to Euro VI, in 2020.
Toyota Group's light vehicle sales will be 10.32 million units in 2020
(Click here to download major 54 countries forecast table.)
|Toyota Group Total||9,909,418||9,763,171||9,865,914||9,969,093||10,090,227||10,259,442||10,322,725|
|Source: LMC Automotive "Global Automotive Sales Forecast (Quarter 2, 2017)"
* Data is only available for 54 countries, so figures in the chart do not match the Toyota Group Total numbers.
(Note) 1. Data indicate figures of only small-size vehicles, including passenger cars and light commercial vehicles with a gross vehicle weight of under 6 tons.
2. All rights reserved. Reproduction of any data will require permission of LMC Automotive.
For more detailed information or inquiries about forecast data, please contact LMC Automotive.
Toyota, North America, TNGA, GA-L, Camry, C-HR, LC, LS
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