Toyota sheds some manufacturing to focus on new car technology

By Naomi Tajitsu

TOKYO (Reuters) - Toyota Motor Corp on Friday said it was planning to transfer some its parts manufacturing operations to its main supplier Denso Corp to free up resources to compete more effectively on new vehicle technologies.

Toyota said it would consolidate core electronics component operations of within Denso from late next year, adding that Denso would take over mass production of electronic parts used in its vehicles from 2022.

Leveraging its "keiretsu" tight-knit relationship with its group supplier, Toyota is shedding some of its in-house parts production as it looks beyond making conventional vehicles to develop new technologies including electric cars, self-driving vehicles, ride-sharing and other mobility services.

Friday's announcement is the latest move by Toyota, which sells 10 million vehicles each year, to streamline its operations as it faces fierce competition from rivals including Volkswagen AG and also from technology companies such as Google which are moving into the automotive space.

Toyota said that consolidating development and mass production of components which control electric cars and automated driving functions would eliminate operational overlap, helping it to shift resources to new technologies.

"By consolidating mass-production development and production of electronic components of both Toyota and Denso within Denso ... Toyota and Denso aim to establish a speedy and competitive development and production structure," Toyota said.

Denso, which manufacturers components ranging from air conditioning systems to semiconductors, already counts Toyota as its biggest customer, accounting for nearly half of its annual sales. Toyota is Denso's biggest shareholder, owning a 24 percent stake.

"They're basically pulling in all of the forces they need among the group companies to go electric. It's reinforcing that they will be working very closely with Denso," Janet Lewis, head of Asia transportation research at Macquarie Securities, said.

"This move highlights the scope and scale of investment needed to develop all these new technologies."

DEEPER TIES

Toyota and Denso's relationship goes back to 1949, when Nippondenso was formed as a spin-off of Toyota. After years of supplying Toyota nearly exclusively, Denso has expanded its non-Toyota client base, particularly overseas.

The two companies have also been setting up partnerships with other companies as they pool resources to contain the rising costs of developing new technologies.

Toyota has teamed up with Suzuki Motor Corp and Mazda Motor Corp to develop lower emission cars, while it is developing next-generation batteries for electric cars with Panasonic Corp. Denso has formed alliances with electronics makers including Toshiba Corp, while also scooping up tech start-ups.

Also on Friday, Toyota said it had concluded a memorandum of understanding with Toyota Tsusho Corp, its trading arm, to consider transferring the automaker's sales and marketing operations for Africa to Toyota Tsusho from January 2019.

(Reporting by Naomi Tajitsu; Editing by Biju Dwarakanath and Jane Merriman)