Toyota Motor Corporation (7203.T) is actively considering moving production of its next-generation RAV4 SUV to the United States, in a strategic shift that reflects growing concerns over U.S. tariffs and a push to localize supply chains. According to sources familiar with the matter, the Japanese automaker is evaluating the possibility of assembling the all-new RAV4 at its Kentucky facility, as part of a broader move to insulate itself from the impact of rising trade barriers and currency volatility.
The RAV4, Toyota’s flagship SUV, was the best-selling vehicle in the United States in 2024, with sales exceeding 475,000 units. The model accounted for approximately 20% of Toyota’s total vehicle sales in the country, underscoring its critical importance to the company’s North American portfolio.
Production Realignment Underway
Toyota currently manufactures the RAV4 in Japan, Canada, and the U.S. state of Kentucky. Initially, the automaker had planned to export the upcoming sixth-generation RAV4, set for global rollout starting in 2026, from Japan and Canada. However, with U.S. demand projected to exceed supply, Toyota is now reconsidering its plans and may ramp up production within the U.S., insiders say.
While a final decision has yet to be made, one source indicated that if Toyota greenlights the Kentucky production plan, manufacturing would likely commence by 2027. This timeline factors in the extensive retooling and infrastructure updates required to accommodate the new model at the plant.
Tariffs and Currency Risks Driving Localization
The move comes in the wake of President Donald Trump’s administration reintroducing a steep 25% tariff on imported vehicles, a measure that has sent ripples across the global automotive sector. For Toyota and other foreign automakers, the tariff hike presents a dual challenge: increased costs on imports and exposure to currency fluctuations, particularly the Japanese yen.
By bolstering its U.S. manufacturing footprint, Toyota aims to reduce its tariff exposure while stabilizing production costs in a volatile economic environment. Two sources noted that producing the RAV4 locally would mitigate the financial risks tied to the yen-dollar exchange rate, further strengthening Toyota’s supply chain resilience.
No Official Confirmation Yet
In a statement provided to Reuters, Toyota neither confirmed nor denied the potential shift, saying only that the company “continually studies ways to improve its manufacturing to serve customers best and provide stable employment.” The automaker declined to comment on what it referred to as “speculation.”
Despite the uncertainty surrounding Kentucky’s role, insiders emphasized that Toyota’s Canadian operations are expected to maintain their current output levels.
Industry-Wide Adjustments
Toyota’s reassessment mirrors broader trends in the automotive industry, as global manufacturers reconfigure their production strategies to adapt to evolving trade dynamics. Nissan, for instance, has already scaled back Japanese production of its top-selling U.S. model by 13,000 units. Meanwhile, Honda plans to manufacture the next-generation Civic hybrid in Indiana rather than in Mexico, a move also driven by tariff concerns.
With consumer demand for SUVs showing no signs of slowing and trade tensions escalating, Toyota’s potential U.S. expansion could serve as a bellwether for further localizations across the industry.
