By on January 16, 2013

Toyota sold 236,659 Prii (all kinds) in the U.S. alone in 2012, all of them imported from high-yen Japan. This is a major drag on the car’s profitability. Long import routes are a hindrance, offshore production also tends to impact the granularity of options and trims. U.S. production of the Prius was expected for last year, it did not happen. Yesterday, Shigeki Terashi, head of Toyota Motor North America Inc. came as close to announcing as possible that Toyota plans to produce the Prius in North America. He didn’t really say it, and you needed to be Japanese to hear it.

After the Nikkei [sub] asked Terashi whether he would move Prius production to N.A., he answered that Toyota intends to  ”make cars where they are popular.” The Nikkei takes it that the “comment suggests the firm is looking to gain a cost edge over rivals.” This could be just for local assembly, with the powertrain coming from Japan, however, “the North American unit will also consider locally manufacturing key components for hybrids, such as batteries and motors,” Terashi told The Nikkei.

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22 Comments on “Prius Production Heading To American Shores...”


  • avatar
    mike978

    “U.S. production of the Prius was expected for last year, it did not happen.”
    I am curious why Prius manufacturer didn`t move to the US last year if Toyota had said it would. Usually they keep to what they say. Any insights BS?

    • 0 avatar
      KixStart

      I would guess they didn’t have the capital budget for the shift. Either they curtailed new capital expense overall as part of an general belt-tightening or they decided some other capital expense project had better ROI.

      • 0 avatar
        mike978

        Seems reasonable. Sounds like normal business practice, glad they are not being criticized for not following through as originally stated. Although I am not sure the same would apply to other companies doing the same.

    • 0 avatar
      Prado

      Here is what I think happened… Toyota WAS building a plant to build the Prius in Mississippi. When GM bailed (though bankrupcy) on the Toyota/GM Califorina joint venture plant, Toyota used that as an opportunity to get out of Cali (and the UAW) as well. Production of the Corolla went to the new plant.

      • 0 avatar
        mike978

        Thanks for the information. The Corolla makes sense as it is high volume and relatively cheap, so smaller margins.

      • 0 avatar
        Pch101

        The Fremont plant was Toyota’s first production venture in North America. At the time, the whole thing was an experiment, which made proximity to Japan critical. (The location could be reached on a direct flight.) The plant was also closed, which allowed Toyota to conduct its experiment at relatively low cost, since it didn’t have to build a factory from the ground up.

        Fast forward to 2009. Production in the US is no longer an experiment. Much of the US’ auto production has moved to the Southeast, which means that there is now a major base of suppliers there. On the other hand, auto production has declined in California, which allows for less of a supplier base there, which makes it less attractive than it once was.

        And the market has crashed. The future for hybrids is, for a moment, uncertain. Stalling the Prius expansion program began to look like a good idea.

        Now that it’s clear in 2013 (at least to most of us) that the world isn’t going to end, it’s time to ramp up again. And the Prius is now solidly entrenched in the US marketplace, so it’s time to move the production to where the sales are.

    • 0 avatar
      L'avventura

      The big difference is supply chain.

      This time Toyota is committing to a full-scale production in the US with its associated supply chain also being completely US built. Batteries, motors, etc.

      Let’s keep in mind, Toyota also builds the Prius in Jilin, China. However, all its hybrid and key components are shipped in from Japan. This is due to minimal Chinese sales and a risk of IP theft of key technologies.

      As we can expect a rise of gas prices over time, and stronger emissions and mileage requirements, it would be desirable for Toyota to have those key hybrid technologies produced in the US market. This means that other US produced cars can better tap Toyota’s hybrid technology and more vehicles outside the Prius brand can benefit from those technologies at lower cost.

      Even as the yen weakens, the trend of moving production from Japan to overseas will quicken. Denso is investing billions for US expansion as well. The US will be a central spot for future manufacturing growth, Bertel, I remember wrote an article about Toyota wanting to export factories not cars.

    • 0 avatar
      SpinnyD

      New plant in Mississippi still getting their legs and having their first model change this year, maybe an announcement for next year.

    • 0 avatar
      TW4

      The answer is obvious. Japanese manufacturing is undergoing a rough correction after years of manipulating US-yen exchange rates, much like the Chinese and Koreans have done with their exchange rates against the dollar. Japan has one of the highest debt-to-GDP ratios of any nation (only eclipsed by Greece) so they have trouble following the rest of the world during global quantitative easing. The situation is so tense that Toyota cannot publicly state its plan to move jobs out of Japan and re-balance trade with the US.

      Asia has been using currency policy as industry protectionism (Japan) and job-creation (China) for over a decade. The US has paid a very high price in lost jobs and stagnant income. Loose credit and deficit spending stabilized the situation, until we overheated the markets and caused a meltdown.

      The US trade deficit must be closed, but we have no leverage or moral-highground in the WTO b/c we are addicted to oil. The US can scarcely demand balanced trade with China, Japan, and the rest of the world, when we purposely run huge trade deficits for oil. We are now drilling domestically and implementing strict CAFE, while also putting pressure on manufacturers to bring jobs back to the US. OPEC and Canada are not panicking b/c China have vowed (genuinely, I hope) to transition to better domestic productivity, which should keep oil demand and prices relatively stable as the US re-balances its trade.

  • avatar
    KixStart

    Bertel,

    Can you estimate the impact, in $$ per Prius, of the unfavorable currency exchange? I understand transoceanic freight is on the order of $700.

    • 0 avatar
      tresmonos

      That would be insanely difficult to do without knowledge of the overhead costs of each perspective plant, along with any piece cost savings one would achieve with re-sourcing suppliers (whether they look to locally sourced components for trim, etc). Bertels comments about trim content pertain to this – depending on the markets that their Japanese production exports to, along with the capacity of their Japanese plant determines what level of complexity meets your business case.

    • 0 avatar
      L'avventura

      This is actually easy to calculate in terms of revenue.

      Before the US Housing Market crashed, the Japanese yen traded at around 120 yen to dollar near the end of 2007. Since the, due primarily to the US QE moves(printing money), the dollar has weakened and the yen has strengthened. At its peak it hit around 76 yen to the dollar.

      The average transaction price of a Prius is around $26K in the US. Meaning before the yen sky-rocketed Toyota brought in around ~3.2 million yen in sales. At the yen’s strongest, at 76 yen/dollar, we are talking about just 2 million yen from an average US Prius sale.

      So ~1 million yen in revenue for Toyota in Japan due to the strong yen at its peak. So around a third, from its peak to its weakest point.

      The yen has weakened considerably since Abe took power this last December as his government is pressuring the BOJ to hit a 2% inflation target (meaning more QE). Its now trading around 89 yen/dollar.

      Since Toyota has been moving production from Japan to overseas in the last couple years, at this point an overly weak yen is also not in Toyota’s best interest as well. Renault-Nissan’s Carlos Ghosen said he considered 100 yen/dollar ‘neutral’.

      • 0 avatar
        KixStart

        OK. I didn’t realize it was that simple.

        And I hadn’t noticed the recent fall in the yen. Thanks.

      • 0 avatar
        L'avventura

        @Kixstart

        Its simple in terms of straight revenue. I don’t want to give the oversimplified impression. Supply chain is very global in modern manufacturing, and lots of the different currency risks come into that. There are obviously other factors, and companies keep foreign reserves and only convert that back to their domestic currency at strategically ideal times. But you can get the general idea of how much fall in revenue by looking at relative FX rates.

        Let’s look at something more recent, a more concrete example. That is the recent *slight* weakening of the yen to mid-high 80s (yen/dollar), and *slight* strengthening of Korean Won.

        “Japan’s Toyota Motor can now in principle offer a discount of more than 10 percent to its U.S. customers without losing profit, whereas South Korea’s Hyundai Motor has to raise its dollar price by over 5 percent to keep up with the won.”

        Reuters:
        http://www.reuters.com/article/2013/01/14/us-korea-currency-idUSBRE90D14L20130114

  • avatar
    Mandalorian

    The Prius is one of the most reliable cars on the market. Watch that drop, now that it is made in the US.

  • avatar

    I do like to see a J on the door before the serial number myself.

    • 0 avatar
      volvo

      Exactly. It is hard to determine the current truth of it but I still remember the autos built in the US during 1970 to 1990. In the 70s a friend once asked me what US automakers could do to slow down the adoption of Japanese and German brands by the then “trendsetters” who were all buying foreign cars. My facetious answer was that perhaps the only hope was for the UAW to ask the ILU to damage the cars as they rolled off the ships. That being said I had an 89 5.0 mustang that cost less per mile over 19 years of ownership than any other car I owned and a Windstar van that was also pretty inexpensive if you don’t count the Engine, transmission and A/C system that Ford replaced under warrantee.

  • avatar
    silverkris

    It’s totally appropriate to have the post picture of a Prius overlooking downtown San Francisco. Prius vehicles are very, very ubiquitous in the SF Bay Area, and especially in Silicon Valley.


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