Toyota is paying the price for its EV hesitancy. The Japanese automaker announced on Monday that it’s laying off approximately 1000 workers at its factory in the southern Chinese city of Guangzhou. The Guangzhou plant is a joint venture between Toyota and the Guangzhou Automobile Group (GAC).

The move comes as Toyota struggles to compete in China’s highly competitive auto industry, which is rapidly transitioning to EVs.

The Guangzhou factory, which has around 19,000 employees, produces Camry and Levin models. It also produces Toyota’s first EV model, the bZ4X.

Despite launching the bZ4X in China in October 2022 at a competitive starting price, Toyota’s competitors have cut prices and hurt Toyota’s sales. Since January 2023, Tesla has reduced the starting price of the Model 3 sedan in China by 14% and the Model Y by 10%.

In response to the challenging market conditions, Toyota reduced the prices of its EVs by 15% in February, but the strategy did not yield the expected results. Toyota’s Chinese EV sales fell by 9% in the first half of the year.

Other Japanese automakers, including Mitsubishi, Honda, Mazda, and Nissan, are also experiencing declining sales in China due to the lack of competitive EV models compared to domestic automakers. The market share of Japanese automakers in China dropped from 20% to 14.9% in the first half of 2023.

The reluctance of Japanese automakers to produce EVs is proving costly in China, which is currently the world’s leading EV market. A report warned that Japan could face a 14% drop in GDP if it fails to boost EV production.

In response to the changing market dynamics, Japanese automakers, including Toyota, are ramping up their EV efforts.  Toyota is investing in battery technology, dedicated EV platforms, and more efficient models.

In addition, the Japanese government is increasing its support for storage battery technology. The government is set to provide $847 million in subsidies to support Toyota’s development of solid-state EV batteries.

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