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Toyota wants to use more hybrid system parts made in China

By Yoko Kubota and Norihiko Shirouzu

CHANGSHU, China (Reuters) - Toyota Motor Corp <7203.T> wants locally procured parts to make up at least half the components in the gasoline-electric hybrid propulsion systems for the Corolla and Levin cars it plans to start making in China next year.

Shinichi Matsumoto, Vice President for Toyota Motor Engineering & Manufacturing in China, said Toyota needs that level of local content in order to bring down prices of hybrids and to generate more sales in the world's biggest auto market.

Toyota, which currently pays costly tariffs and transport fees for bringing key components from Japan to assemble hybrid vehicles in China, aims to slash costs by using many locally procured materials and parts, Matsumoto told reporters on Tuesday.

"My feeling is that unless the local procurement ratio reaches 50 percent, we can't call it 'localized'," he said at a research and development centre in Changshu, about 80 kilometers (50 miles) west of Shanghai. He was referring to number of parts procured specifically for the hybrid system.

"Ultimately, our goal is to localize 100 percent."

Matsumoto also said that using parts procured in China for its new hybrid cars does not mean it is lowering quality to pursue higher sales. Toyota plans to keep the system's quality equal to that achieved in Japan, he said.

The world's biggest auto maker said this week that it will start manufacturing and selling Corolla and Levin sedans for China in 2015 with a locally made hybrid system including the battery and the motor, the first time it will make hybrids outside of Japan using key components procured locally.

But made-in-China components does not necessarily mean made-by-Chinese companies. While localizing parts is going more smoothly than Toyota had expected, much of that output currently comes from Chinese units of Japanese parts makers with manufacturing operations in China, Matsumoto said.

Toyota is also procuring from several Chinese companies, he said.

In a gasoline-electric hybrid like Toyota's Prius, a battery captures energy from the brakes to provide a supplement to the combustion engine, boosting overall mileage, particularly in stop-and-go city traffic.

Toyota, which already assembles the Prius and Camry hybrids in China with component and system kits brought in from Japan, said it is trying to educate Chinese customers about hybrid technology. For instance, some people think they must be re-charged like electric vehicles, which is not the case.

While Toyota is not the only firm trying to localize production of the hybrid system, it is the furthest ahead.

Honda Motor Co <7267.T> is also trying to start procuring key components in China, including motors and lithium-ion batteries, Takahiro Hachigo, an executive at Honda's Chinese operations, said in a news conference in Beijing on Sunday. The firm plans to start making hybrid cars in China by 2016.

"As corporate average fuel emission standards get stricter, we believe that hybrids will become the mainstream among green cars," Seiji Kuraishi, Honda's Operating Officer and COO for the China region, told the same news conference.

In Japan, the Prius' starting price is around $20,500 before subsidies. In China, the car starts selling at $36,900 and most buyers do not receive subsidies except in certain cities.

Toyota said on Tuesday that it sold 26,800 hybrid vehicles in China in 2013, up 55 percent from a year earlier. It has not said how many hybrids it aims to sell in China in the future. ($1 = 102.5700 Japanese Yen, 6.2274 Chinese Yuan)

(Editing by Keiron Henderson)

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