All charged up about new JV

Toyota partners with Chinese firm to secure access to rare earths


28 Jun 2013
Week in China

Let’s go places, urges Toyota’s latest corporate tag line. And the next destination for the Japanese carmaker seems to be Changshu, a city on the banks of the Yangtze River in Jiangsu.

There, Toyota is setting up a new joint venture with Hunan Corun New Energy to produce batteries for the hybrid cars it plans to sell to Chinese drivers.

Why partner with Hunan Corun? The first theory is that Toyota has sniffed out a new opportunity to sell more of its low emission cars like its Prius (a ‘hybrid’ vehicle with both an electric engine as well as a traditional gasoline one).

Hybrid cars cost less, meaning a greater chance that they will be
adopted as a more environmentally friendly technology

Previously China’s policymakers seemed intent on leapfrogging from a world of gasoline-powered vehicles to all-electric ones as rapidly as possible. As a result, the bulk of the subsidies on offer to buyers of new energy cars have been for all electric models or for hybrids that are nearly fully electric. But there is speculation that the regulators may soon announce a new set of subsidies designed to encourage the sale of more conventional hybrid cars – i.e. vehicles more evenly balanced between battery power and a fuel engine, like the Prius.

The problem is that interest in the greenest of the new energy cars has been limited (see WiC120). Customers have been reluctant to take a risk on the most groundbreaking of the new designs or put off by worries that the network of charging stations needed to power them is too limited. And even more significant: new energy models cost too much to buy in the first place, even after subsidies are factored in.

By contrast, more conventional hybrid cars don’t require quite the same leap of faith from prospective buyers. And they cost less, meaning a greater chance that they will be adopted as a more environmentally friendly technology.

We do not want to import parts
and components from Japan but
prefer to produce them in China. Currently we are researching this – Takeshi Uchiyamada

In this context, Toyota has been sending a consistent message to the Chinese authorities, promising to launch two of its most affordable hybrid models in China, with both cars manufactured through its two joint venture partnerships with Guangzhou Auto and FAW Group. Toyota’s point is that it is committed to making the core components for its hybrid models in China too – items like the battery, the motor and the vehicle control system – so that it can keep its cars within a price range that appeals to local buyers.

Nor is it any coincidence that Hunan Corun produces the type of nickel-metal hydride batteries that Toyota uses in the majority of its current hybrid designs, says the Economic Observer. Other manufacturers like BYD and Tesla prefer lithium-ion batteries but these cost more to make, the newspaper says.

“The battery is a relatively expensive part of a hybrid system,” Toyota’s chairman Takeshi Uchiyamada told reporters at the Shanghai Auto Show in April. “We do not want to import parts and components from Japan but prefer to produce them in China. Currently we are researching this.”

Only a few weeks later we have confirmation of the plan thanks to news that Toyota has asked Corun to become its sole Chinese supplier of nickel-metal hydride batteries.

That brings us to the second theory. Cementing a JV with Corun could have further benefits, says the Shanghai Securities News. Another objective is to lock in reliable access to some of the rare earths needed to make new energy cars. The Economic Observer claims to have detected similar motives, quoting an unnamed insider as saying that every Toyota Prius requires a kilogramme of neodymium and as much as 15 kilogrammes of lanthanum.

Of course, China continues to control the large majority of rare earth supplies and the Japanese have had problems getting hold of exports in the past (see WiC143), particularly when Beijing ordered a sales embargo as part of the row over disputed islands in the East China Sea. Hence a partnership with Corun – which took control of Yiyang Hongyuan Rare Earth Company last June, and established Hunan Rare Earth Industrial Group in a joint venture with the Hunan provincial government last October – might make strategic sense. Via Corun, Toyota could be hoping for better access and better pricing for rare earths in future.

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