UPDATE 1-Toyota faces excess capacity in China as automaker tries to raise sales

Tue Jun 3, 2014 6:30am EDT

(Adds details on China operations, capacity)

BEIJING, June 3 (Reuters) - Sales in China for Toyota Motor Corp are recovering, but the Japanese automaker is still grappling with excess manufacturing capacity and will likely not need a new assembly plant until around 2018, according to two senior Toyota executives with knowledge of the matter.

A trio of significantly redesigned vehicles - the RAV4 compact crossover utility vehicle and two compact cars marketed under the Vios and the Yaris names - have been helping Toyota boost sales despite the lingering political tensions between Tokyo and Beijing over a territorial issue that earlier weighed heavily on sales of Japanese cars.

Company executives in charge of Toyota's China operations have become more optimistic for the future and some have began talking about doubling sales in China, although none has given a clear time frame for achieving the goal. They are also touting plans for expanding capacity or possibly building a new assembly plant in China.

"But the truth of the matter is that we're still trying to fill out a couple of plants, which have some excess capacity, and we need to push into areas of China's big market where we're not traditionally well-represented with those new, more affordable compact cars," a senior Toyota executive told Reuters on condition of anonymity.

"That's our immediate focus. We're talking about expanding our sales in China but don't think we need a new assembly plant until after 2018."

Toyota reported Tuesday its sales of automobiles in China grew 2.7 percent in May from a year earlier to 81,100 vehicles. That followed a 12.4 percent year-on-year rise in April and a 19 percent rise in March.

In the first five months of the year, Japan's biggest automaker sold 394,900 vehicles, up 16.1 percent from a year earlier.

Toyota's China sales growth on a monthly basis slowed significantly in May, but that was due more to what the two knowledgeable individuals described as technical factors, which included a slowdown in sales of the Corolla car, a key volume product for Toyota in China, ahead of the planned launch of a redesigned version of the model this summer.

Otherwise Toyota officials believe it could continue bouncing back from the sales slump it went under much of the last quarter of 2012 and the entire 2013 amid a flare-up of anti-Japanese sentiment that arose due to a territorial dispute between Beijing and Tokyo.

One of the executives said the goal of selling 2 million vehicles in China is possible but might take until 2025. He said there is no consensus on the time frame for meeting that objective as yet among Toyota's top managers.

Toyota is currently looking into the possibility of building a new plant and is talking to various municipalities and other regional governments, the executives said.

Toyota operates joint ventures in China with China FAW Group Corp and Guangzhou Automobile Group.

(Reporting by Norihiko Shirouzu in Beijing; Editing by Matt Driskill)