Toyota Motor Corporation TM plans to shift half of the total vehicles it manufactures to new cost-saving platforms by 2020. The automaker believes that it will be able to reduce development costs by 20% by shifting production and through the use of common components.
This initiative of reducing costs, called Toyota New Global Architecture follows the same strategy adopted by its rival, Volkswagen AG VLKAY that was first implemented in 2012.
Toyota focuses on reducing its costs of production along with ensuring higher productivity by developing a greater number of new models on fewer platforms. In addition, the company places emphasis on developing fuel-efficient vehicles that are lighter in weight and equipped with the latest technology.
Toyota announced that the first new platform will be launched with a mid-size, front-wheel-drive vehicle this year. The next version of the Prius hybrid, which Toyota will start producing this year, will be manufactured under the new strategy.
Toyota expects that this new plan will help in increasing the fuel efficiency of its powertrains by 25%. In addition, the automaker expects the new strategy to lead to a decline of 50% in the cost of starting new production lines. Also, it expects the initial investment required for a new plant to decrease by 40% following the implementation of the plan.
However, the automaker is likely to face some challenges due to this strategy. For instance, if any defective parts are used in a greater number of vehicles, it can lead to more recalls for repairs. Though the strategy has some drawbacks, global automakers expect that benefits from it will be greater than the challenges faced.
According to IHS estimates, Volkswagen will lead the industry in terms of producing the maximum number of vehicles from a single architecture. Volkswagen plans to produce about 40 different models, including the A3 and the Golf, using the MQB platform. In addition, Volkswagen is expected to produce 30 million vehicles using this platform by 2021. In order to beat its rival with respect to global sales Toyota needs to implement the strategy as soon as possible.
Toyota has been the leading automaker in terms of global sales in the last three years. The Japanese automaker’s victory can be attributed to its impressive product lineup and marketing initiatives.
Toyota currently carries a Zacks Rank #4 (Sell).
Better-ranked automobile stocks include Tata Motors Limited TTM and Allison Transmission Holdings, Inc. ALSN, both sporting a Zacks Rank #1 (Strong Buy).
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