Japanese carmaker Toyota (TM) has dealt a blow to President Trump’s U.S. manufacturing strategy by reducing the number of its sites in the States.
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According to a report in Nikkei Asia, Toyota Motor Corporation will consolidate its two Lexus plants in the U.S. into one. Toyota shares were down over 1% in pre-market trading.
End of ES
It currently makes Lexus ES sedans in Kentucky and Lexus TX sport utility vehicles, or SUVs, as they are more commonly known in Indiana.
It is reported that production of the ES will end once current orders are completed, with the next model set to be exported from Japan instead. After that change is completed, then the Indiana facility will be Toyota’s sole Lexus plant in the U.S.
Toyota will also continue making two Lexus models at its Canadian plant. “We select appropriate production sites in accordance with price ranges,” Toyota’s US unit said.
The move, it appears, aims to bolster U.S. hybrid production while shifting the luxury end of its range to Japan. That could be because Toyota believes that there is less demand for the luxury range in the U.S. as consumer confidence slackens. Although its U.S. sales are still looking strong overall – see below.
Some analysts suggest that the move has been made because of President Trump’s tariff strategy and the subsequent hike in the cost of production.
Earlier this month Trump signed an executive order that cuts tariffs on Japanese car imports from 27.5% to 15%. A reduction but still quite the cost headache for Toyota.
As such, moving production to Japan and having to export more cars to the U.S. seems to be an odd strategy.
Production Choices
Other Asian-headquartered carmakers have taken the opposite decision. Instead of retreating from the U.S., they have looked to expand their presence there to avoid tariff costs.
Honda (HMC), for example, is looking to shift production of its next-generation Civic hybrid to the U.S. Hyundai Motor (HYMLF) also announced plans earlier this year for an investment of $21 billion in the United States from 2025 to 2028.
Japanese giant Hitachi (HTHIY) announced earlier this week that it also planned to ramp up spending in the U.S. It has recently opened a $100 million Hitachi factory in Maryland that will manufacture 20 train cars per month for use in Washington’s subway system and other railway services in the United States.
This, interestingly, includes dog-shaped robots that detect scratches on train cars during the manufacturing process. Trump is likely howling with delight at the news given that one of the main tenets of his tariff strategy is to boost U.S. manufacturing output and jobs.
But the Toyota news will be a concern that tariffs alone can’t force companies to change their production plans.
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