Toyota snub dents KSA mfg drive | 2019-06-20 | daily-sun.com

Toyota snub dents KSA mfg drive

20 June, 2019 12:00 AM printer

RIYADH: Saudi Arabia began courting Toyota two years ago to build a large car plant as part of Crown Prince Mohammed bin Salman's grand plan to wean the kingdom off oil revenues and create jobs for young Saudis.

But the Japanese carmaker has rebuffed Riyadh's overtures following talks that dragged on without tangible results because high labor costs, a small domestic market and a lack of local supplies gave Toyota pause for thought, four sources said, report agencies.

Securing a deal with a major automaker by 2020 for a car plant is a key target in the Gulf state's national industrial strategy, part of a broader agenda to diversify the economy of the world's largest oil exporter.

Failure to do so would be a setback for Prince Mohammed, coming after the listing of oil giant Saudi Aramco was shelved and the killing of journalist Jamal Khashoggi tarnished the kingdom's image.

"Nobody would say 'No, full stop' ... but they politely conveyed they're not interested," said an industry source familiar with the Toyota talks.

Toyota said it could not comment on the current internal discussions and communication with the Saudi government.

Saudi Arabia's ministry of energy, industry and mineral resources and the government media office did not respond to requests for comment.

As part of measures designed to create 1.6 million manufacturing and logistics jobs by 2030, Prince Mohammed wants to localize half the production of imported vehicles and weapons - which are expected to account for up to US$100 billion in spending by Saudi government entities and consumers by 2030.

Under the deal Toyota signed in March 2017, the Japanese company agreed to conduct a feasibility study for an industrial project to make vehicles and car parts in the kingdom.

Two sources familiar with the matter said Toyota concluded after the study and negotiations that Saudi Arabia would need to provide huge subsidies for the project to be viable.

"They found that production costs will be similar to other countries only if there is a 50per cent government incentive. But even then, they aren't sure it will be profitable," said one source with knowledge of the negotiations.


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