Lexus Moves to Shanghai as Toyota Bets Big on China’s EV Market

Lexus Goes Local in China: What Toyota’s Shanghai Expansion Means for China’s EV Market

The Future of Lexus in China—Game-Changer or Just Another Move?

It’s official: Lexus is going domestic in China—at least in the electric vehicle space. Toyota recently announced the establishment of a fully owned Lexus EV and battery production company in Shanghai. The move, aimed at capitalizing on China’s robust EV supply chain, is a strategic play to bolster Lexus’s footprint in a market that’s increasingly dominated by domestic brands like BYD and NIO.

But will this shift be enough to reverse Lexus’s waning influence in China? Or is Toyota simply too late to the party?

Why Shanghai? The Magnetism of China’s EV Industry

Shanghai’s business-friendly policies and well-developed supply chain make it an obvious choice for foreign automakers looking to localize production. The city has a track record of attracting automotive giants—Tesla’s Gigafactory, for instance, was a major turning point for EVs in China. Now, Lexus hopes to replicate some of that success.

Key takeaways from Toyota’s announcement:

Lexus’s Shanghai facility will be located in Jinshan District, an unexpected choice over traditional automotive hubs like Jiading or Lingang.
The new factory will focus solely on EVs, meaning no locally produced hybrid or gas-powered Lexus models.
Production is set to begin in 2027, signaling a long-term commitment despite uncertainties in the luxury EV market.

Can Lexus Overcome Its EV Struggles?

Let’s be honest—Lexus hasn’t exactly been an EV leader. While its hybrid technology has been widely praised, the brand has lagged behind in fully electric vehicles. The Lexus RZ, its current EV offering, has struggled to make an impact against Tesla, BMW, and domestic players like NIO and XPeng.

One major hurdle is pricing. Historically, Lexus’s premium image has been tied to its “Japanese import” status. Localizing production means cost reductions, but it also dilutes the exclusivity factor that has made models like the ES, NX, and RX so successful in China. If the price drops too much, Lexus risks cannibalizing sales of Toyota’s own Avalon and RAV4 models.

Lessons from Tesla’s China Playbook

Tesla’s success in China wasn’t just about building a factory—it was about integrating into China’s domestic supply chain. When Tesla first entered the market, many of its components were imported, leading to high costs. Over time, it localized production, cutting prices and boosting its competitive edge. Today, over 95% of Tesla’s components in China are sourced locally.

Lexus, on the other hand, has historically relied on Japanese suppliers. Even Toyota’s THS hybrid system, despite being 95% localized, still depends on key Japanese components like PCUs (power control units) and hybrid batteries from Denso and Toyota’s own battery division.

The question is: Will Toyota fully commit to Chinese suppliers for Lexus EVs, or will it remain tethered to Japanese supply chains? The answer could determine whether Lexus can truly compete with Tesla and China’s leading EV brands.

The Market Reality—Is Lexus Too Late?

Had Lexus made this move five or ten years ago, the story might have been different. But today, the Chinese EV market is brutally competitive. Tesla has solidified its position, while local brands like BYD, NIO, and Li Auto are innovating at a rapid pace.

Additionally, Lexus faces a brand perception issue. In the past, Japanese automakers were synonymous with reliability and technological innovation. But recent years have seen Chinese consumers shift their interest toward domestic brands, viewing Japanese offerings as conservative and outdated.

Even in the luxury space, Lexus no longer holds the appeal it once did. The days of models like the GS350 and RC350—vehicles known for their bold performance—are long gone. Instead, the brand’s recent lineup has been criticized as uninspiring and out of touch with modern consumer demands.

What’s Next? A Defining Moment for Lexus in China

If Lexus wants to make a real impact, it needs to:

Fully integrate into China’s supply chain. Just as Tesla did, Lexus must prioritize cost efficiency and innovation through local suppliers.
Reinvent its EV identity. Competing in China means more than just building an electric car—it requires offering cutting-edge tech, aggressive pricing, and a compelling brand narrative.
Embrace smart technology. Autonomous driving, intelligent connectivity, and software-driven experiences are key differentiators in China’s EV market. Lexus needs to go beyond traditional luxury and invest heavily in AI-driven innovations.

Toyota has the resources and the legacy, but execution will be everything. If it can’t match Tesla’s strategic agility or BYD’s cost advantage, Lexus risks becoming just another premium brand struggling to find relevance in China’s rapidly evolving EV landscape.