Toyota Motor Corp.'s Lexus line has no plans to go local. The company believes that caution is in order in China, where factory overcapacity is a chronic issue.
"We are aware of brands that started local production, but it turned out they had to reduce their volume," Tetsuya Ezumi, executive vice president of Lexus China, said at the Beijing show.
China is expected to assemble some 25.3 million vehicles this year and still have unused capacity to build another 12.5 million, according to PwC Autofacts. Excess factory capacity is expected to stay well above 10 million units through 2022 while the overall utilization rate will bob below 80 percent that entire time, according to PwC.
Lexus appears to be doing fine despite relying 100 percent on imported product. Lexus sales in China climbed 14 percent to 88,500 vehicles last year, and the company is targeting a 13 percent gain to 100,000 in 2016.
"We work in a different way from our competitors," Ezumi says.
In keeping with Toyota's strict business philosophy of "pulling" inventory forward only as needed, Lexus is combating price competition by minimizing inventories, Ezumi says.
The average inventory among luxury brands in China is 2.5 months, Ezumi says, but Lexus has trimmed its dealer stocks to an average of just half a month.
The lean inventory means Lexus can better hold the line against incentives being doled out by rivals, all while building brand value that further feeds into higher sales volume.
"If I simply could double volume by doubling output, I'd ask for it," Ezumi says. "But China is not such a simple market."