Toyota plans to build an electric vehicle factory in Shanghai for its luxury Lexus brand, media reports said on Tuesday, amid ongoing challenges for foreign automakers in China.

The world's top-selling automaker aims to launch the factory around 2027 and will operate it without a local partner, Japan's Nikkei business daily reported, citing sources.

This would mark the first Japanese vehicle factory of its kind in China, according to Nikkei.

Toyota declined to confirm the plan when contacted by AFP.

Public broadcaster NHK reported that Toyota hopes building the new plant will help it catch up in the Chinese market.

China overtook Japan as the largest vehicle exporter last year, buoyed by its dominance in electric vehicles (EVs), an area where Japanese firms have fallen behind by focusing on hybrids.

Honda and Nissan, Japan’s number two and three automakers after Toyota, announced on Monday that they would begin talks on a merger to strengthen their position in EVs and self-driving technology.

Citing “dramatic changes in the environment surrounding both companies and the automotive industry,” Honda and Nissan said they plan to establish a holding company by August 2026.

With lackluster consumer spending and tough competition in several markets, many automakers are facing difficulties.

However, Toyota’s strategy of offering a range of vehicles, including hybrids, has paid off in markets such as the United States.

The planned Shanghai factory would primarily produce Lexus models, with Toyota currently selling mostly Japanese-made Lexus vehicles in China, according to Nikkei.