Can Lexus, following in Tesla's footsteps, create a similar "Tesla-like" impact?

Produced by | NPL Finance | Author | Wu Wenwu

Faced with the vast pie of China's new energy vehicle market, Lexus can no longer sit on the sidelines and has officially announced the establishment of a wholly-owned factory in Shanghai. With Tesla's Shanghai Gigafactory proving a success, can Lexus, now following in its footsteps, replicate a similar "Tesla-like" impact?

01 Lexus Can No Longer Stay on the Sidelines, Officially Announcing Shanghai Factory

Rumors have swirled for some time, and now the news is confirmed. The world's largest automaker has decided to establish a wholly-owned factory in China.

NPL Finance observed that on February 5, Toyota China officially announced that Toyota Motor Corporation and the Shanghai Municipal Government have reached a cooperation agreement. Toyota has decided to establish a research and production company for Lexus pure electric vehicles and batteries in Jinshan District, Shanghai, in the form of a wholly-owned enterprise, with plans to commence production in 2027.

Toyota stated that the new company will leverage the advanced and mature industrial chain, logistics network, talent system, and market size of Shanghai and the Yangtze River Delta region to develop pure electric models under the Lexus brand.

Rumors of Lexus establishing a wholly-owned factory in China have been circulating for a while. The most recent one was at the end of December 2024, when media reported that Toyota had decided to build a new electric vehicle production plant in Shanghai, mainly producing Lexus branded models.

However, at that time, in response to market rumors, Lexus China quickly clarified that it was not an official announcement and would not comment. Unexpectedly, just over a month later, the news of Lexus establishing a wholly-owned factory in Shanghai, China, was officially announced, meeting market expectations.

The market has always been very interested in the news of Lexus localization and factory construction in China. Lexus is currently one of the few luxury automotive brands that have not been localized. Over the years, rumors of Lexus localization have occasionally surfaced, but none have materialized.

Lexus, a brand that polarizes opinions, has loyal fans and users who adore it. In previous years, there were even price increases for vehicle deliveries. Consumers who are not fond of Lexus believe that the brand premium is too high and not worth the price increase, seeing it as "taking advantage of consumers."

Founded in 1983, Lexus is a luxury automotive brand under Toyota Motor Corporation. It quickly made a splash in the US market soon after its inception and later expanded worldwide, along with Honda's Acura and Nissan's Infiniti, collectively known as the three major luxury Japanese brands, with Lexus being the most successful.

Lexus initially entered the Chinese market under the name Lingzhi, but due to trademark issues, it was directly translated into Lexus and officially entered the Chinese market in 2004. Until now, many consumers still habitually call Lexus Lingzhi.

Over the years, Lexus has been favored by consumers with its imported status, focusing on concepts such as craftsmanship and artisan spirit, design that fits the oriental charm, stability, reliability, durability, and value retention. It is particularly popular in Guangdong Province. As everyone knows, there is a Cantonese saying about Lexus's reputation: "Life is satisfactory, drive a Lingzhi."

Market information shows that by 2019, Lexus surpassed 200,000 sales as an imported car. In the past two years, a price war has erupted in China's automotive market. Initially, Lexus did not participate, but later had to bow to the market. Previously price-increased models such as the ES and RX are now sold without price increases and even come with discounts.

Data shows that in 2024, Lexus sold 181,096 vehicles in the Chinese market, representing a year-on-year increase of 0.3%, although significantly lower than the peak of 227,000 vehicles in 2021. However, Lexus was the only imported luxury automotive brand to experience positive growth in 2024.

Now that the news of Lexus establishing a wholly-owned factory in Shanghai has been confirmed, it has naturally quickly sparked global market attention and heated discussions. Faced with the vast pie of China's new energy vehicle market, Lexus can no longer stay on the sidelines.

02 Lexus Follows Tesla's Footsteps into the Market

In the past, when foreign automakers were mentioned in China, they were all in joint venture mode. Later, due to the liberalization of national industrial policies, foreign automakers were not only encouraged to establish a third joint venture but also to establish wholly-owned factories in China.

The first foreign automaker to establish a wholly-owned factory in China was Tesla, and now Lexus has become the second foreign automaker to do so after Tesla. So, why is Lexus building a factory in China? Is it following Tesla's footsteps?

In the view of NPL Finance, to some extent, it is not an exaggeration to say that Lexus's establishment of a wholly-owned factory in China replicates Tesla's Shanghai Gigafactory model. However, the market environment that Lexus now faces is completely different from when Tesla established its Shanghai Gigafactory, and the reasons are even more numerous and complex.

As everyone knows, although Toyota is the world's largest automaker, relatively speaking, due to Japanese automotive culture and Japanese automotive development strategies, it has always been conservative. This is precisely why Toyota's new energy vehicle business development lags behind Chinese automakers and even the German Volkswagen Group.

Although China's new energy vehicles have achieved leapfrog development, Tesla has played a very obvious and direct role in promoting the entire Chinese new energy vehicle industry and its industrial chain integration effect, like a catalyst in the pond.

Back in 2018, when Tesla was deeply mired in a production capacity crisis, or even a survival crisis, it decided to build a Gigafactory in Shanghai. The contract was signed in July of that year, and land was acquired in October. Just after the factory commenced construction on January 7, 2019, vehicles were officially delivered by the end of December, successfully staging the miracle of Tesla's Shanghai Gigafactory.

After the completion and commissioning of Tesla's Shanghai Gigafactory, cheaper Tesla vehicles were brought to the market. The Shanghai Gigafactory has now become one of Tesla's core production bases for global exports. According to Tao Lin, Vice President of Tesla, who stated on Weibo on January 7, 2024, Tesla's Shanghai factory accounted for half of global deliveries in 2024.

To some extent, the Shanghai Gigafactory "saved" Tesla and contributed to its current success. Tesla, the Shanghai local government, and the entire industrial chain have achieved a win-win situation.

Toyota and Lexus naturally took notice of the success of Tesla's Shanghai Gigafactory and Tesla's success in the Chinese market. If one says that Tesla crossed the river by feeling the stones and achieved the miracle of the Shanghai Gigafactory, then it is not an exaggeration to say that Lexus is now following Tesla's footsteps by establishing a wholly-owned factory in Shanghai.

After all, Tesla's Shanghai Gigafactory has been a success and has enjoyed the first-mover advantage and the benefits of the era in the development of China's new energy vehicles. Moreover, the Yangtze River Delta region is the most complete and concentrated area for China's automotive industrial chain resources, which Lexus only needs to integrate.

Nowadays, China is Lexus's second-largest global market, and its importance to Toyota and Lexus is self-evident. Moreover, China is the most advanced and mature market for the development of the global new energy vehicle market. For Lexus to continue its electrification efforts, the Chinese market is indispensable. There are still many loyal Lexus consumers in China who want to buy Lexus pure electric vehicles.

Due to the importance of the Chinese market, the maturity of the new energy vehicle industrial chain, and the comprehensive factors of Lexus's future development needs, Lexus needs the Chinese market and needs to establish a wholly-owned factory in Shanghai.

03 Can It Create a "Tesla-like" Impact?

From the perspective of market impact, there is no doubt that when Tesla established the Shanghai Gigafactory and localized production, it stirred up the entire Chinese new energy vehicle industry, forming a considerable shockwave.

Even today, Tesla is still profoundly influencing China's new energy vehicle market. For example, Tesla's upcoming budget model in 2025 will undoubtedly stir up the Chinese automotive market once again.

So, now that Lexus is establishing a wholly-owned factory in Shanghai and localizing the production of Lexus electric vehicles, can it create the same "Tesla-like" impact as before?

In the view of NPL Finance, from the current development stage, market environment, industry structure, and other aspects of China's new energy vehicle industry, it is difficult for localized Lexus to create the same "Tesla-like" impact as before.

First, from the perspective of the industry environment and development stage, the localization of Lexus no longer holds the first-mover advantage in the market.

When Tesla initially built the Shanghai Gigafactory, China's new energy vehicle industry was in its infancy. China's domestic automotive brands, including new energy vehicle startups, had not yet achieved economies of scale. As the first wholly-owned automaker, Tesla's Shanghai Gigafactory occupied a first-mover advantage, and Tesla also enjoyed the first-mover advantage of the development of China's new energy vehicle industry.

Nowadays, China's new energy vehicle market is mature, with a market penetration rate exceeding 50%. New energy vehicle startups are on the rise, and all automakers are fiercely competing. Lexus's localization and establishment of a wholly-owned factory have now lost the first-mover advantage. From this point alone, it is difficult for Lexus to create a super shockwave.

Second, Lexus's positioning as a luxury automotive brand means that its consumer and market coverage is not comparable to Tesla, but it also has its uniqueness.

A carmaker's brand positioning determines its different consumer base. Although Tesla has never claimed to be a luxury automotive brand, in the market and the eyes of many consumers, Tesla's brand influence and reputation are indistinguishable from that of luxury automotive brands.

Although Tesla has a small number of models, they can cover consumers from different groups, with a wide market coverage. This means that Tesla is a brand that targets a wide range of mass consumers.

Lexus is positioned as a luxury automotive brand. Although some consumers may choose Lexus pure electric models, relatively speaking, more consumers choose traditional gasoline and hybrid models. The consumer coverage of Lexus is not as wide as Tesla's, but its electric models also have their own consumer base and uniqueness.

Lexus can certainly draw on and learn from Tesla's Shanghai Gigafactory model and successful experience. However, in the future, Lexus needs to find a path in the Chinese market that is similar to but different from Tesla's.

Like Tesla's Shanghai Gigafactory, Lexus's future wholly-owned factory in China can achieve global product research and development, manufacturing, sales, and after-sales service, replicating and drawing on Tesla's Shanghai Gigafactory's successful experience.

After the localization of Lexus's pure electric models, it will provide new options for consumers who love the Lexus brand but want to buy electric vehicles. The localized models will not have tariffs, and the localization of the product manufacturing and supply chain can reduce market prices and reach more consumers.

Lexus's wholly-owned factory in Shanghai can also become one of its main bases for global research and development, manufacturing, and product exports, similar to Tesla's Shanghai Gigafactory. It can even develop exclusive models for the Chinese market.

However, in the future, Lexus needs to find a path in the Chinese market that is different from Tesla's. After all, Lexus is Lexus, and Tesla is Tesla.

In summary, Lexus's establishment of a wholly-owned factory in Shanghai is a move with the trend, which can achieve a win-win situation for multiple parties. However, the competition in China's new energy vehicle sector is fierce, especially in the luxury new energy vehicle market. China's domestic new energy vehicle startups are rising, and they have already taken the lead globally in terms of comprehensive product strength and intelligent driving. Therefore, there is certainly pressure on Lexus's localization efforts.

According to Lexus's plans, its wholly-owned factory in China will commence production in 2027. China's new energy vehicle industry updates and iterates very quickly, and it is difficult to predict what the industry environment will be like by then. Lexus needs to speed up.

Therefore, Lexus's localization efforts and establishment of a wholly-owned factory in Shanghai are worth paying attention to and looking forward to. However, to attract consumers, Lexus needs to tell more unique new stories in the Chinese market in the future.