Why Toyota Announced A $600 Million Investment In The U.S.
Toyota Motors (NYSE:TM) announced a $600 million investment in its manufacturing plant in Princeton, Indiana. The investment will be directed towards the expansion in production capacity of the plant and the retooling of the factory for the production of the next generation of its midsize SUV Highlander. Toyota sold 191,379 units of the midsize SUV in the U.S. auto market last year, a 20.4% increase over 2015 sales. The plant expansion will add 40,000 more units of the vehicle to the production capacity.
Midsize SUVs are the largest subsegment of the SUV market. In 2016, the overall SUV subsegment grew by 4.4%, compared to the overall market which only grew by 0.3%. Within the SUV segment, the largest growth was provided by large SUVs, which grew by 21.6%, while midsize SUVs grew by 2%. Compared to these numbers, Toyota’s Highlander grew its sales by 20.4%. This was clearly an exceptional performance and the company wants to capitalize on the popularity of the model. The fourth generation of the vehicle will go into production in the second half of 2019, which is when the investment in the plant will be made.
This announcement came against the background of a number of other auto makers announcing new investments in the U.S. Auto companies sound eager to avoid the impression that they are moving production from the U.S. to Mexico after the new Donald Trump administration threatened to impose tariffs on imports, particularly on those from Mexico. Toyota operates one factory in Mexico, where it manufactures the popular pick-up truck Tacoma. The truck isn’t nearly as high selling as the Ford F-150, Chevrolet Silverado, Dodge Ram and GMC Sierra but it sold over 190,000 units last year, growing its sales by 6%. The Japanese auto maker has announced an investment in its Mexico plant to boost production capacity to 160,000 units annually compared to 100,000 units in 2015.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Toyota Motor
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