Insourcing versus Integration: Toyota, BYD, and Two Roads to the Global Market
In a recent Defense.info piece, “BYD, Batteries, and the Architecture of Dependence,” I looked at BYD as the clearest automotive expression of what Kenneth Maxwell and I have called the “Architecture of Dependency.”
I ended that piece by treating Toyota’s solid-state battery program as the most credible industrial counter now on the table.
But there is a deeper Toyota story, and it is not about chemistry. It is about how a foreign automaker decides to enter a market that is politically hostile to it.
Toyota answered that question forty years ago, and one of the people who helped shape the answer was my friend Harald Malmgren.
BYD is answering the same question today, and its answer is very different.
Putting the two side by side shows something that the tariff debate tends to miss. The real question is not whether a foreign carmaker builds factories in your country. It is what those factories become.
The Malmgren Lesson
Harald Malmgren trained as an economist in the United States and at Oxford, worked as a research assistant to Thomas Schelling, and was brought into the Kennedy administration by McGeorge Bundy as one of the “Whiz Kids.” He worked defense issues in the Pentagon through the Cuban Missile Crisis, then handled trade and foreign policy for Presidents Johnson, Nixon, and Ford, and advised the Senate in two separate stints.
When he left government, he set up a consulting practice and worked with the CEOs of major global corporations. One of them was Toyota.
As he told me in our 2024 interviews for Assessing Global Change: Strategic Perspectives of Dr. Harald Malmgren, he worked closely with Toyota’s chief executive and his team on “in-sourcing” the manufacture of Toyotas into the United States. Toyota went on to build cars in America at scale, as he had urged.
That advice came out of a particular way of thinking. Malmgren had sat on both sides of the table, in the executive branch and in Congress, on trade and on security. He understood that trade friction is never only economic. It is political, it is about domestic constituencies, and if it is left unaddressed it hardens into policy.
The Japanese auto challenge of the early 1980s was exactly that kind of problem. In April 1981, Toyota placed self-imposed limits on its U.S. passenger-car exports under the voluntary restraint arrangement, capping Japanese shipments at 1.68 million vehicles a year. Toyota’s own history records that, even with the restraints in place, criticism of Japanese cars did not subside and Congress was moving toward local-content legislation.
A company could have treated that as a barrier to get around. The Malmgren insight was to treat it as a signal: if you want to be accepted in the American market for the long term, become part of the American economy.
What Toyota Built
What followed was not a tariff workaround. It was a long, deliberate process of turning Toyota into an American industrial company.
The first step was a partnership with an American incumbent. In 1984 Toyota and General Motors formed New United Motor Manufacturing, Inc. (NUMMI) at a closed GM plant in Fremont, California. Toyota described the venture at the time as a model of U.S.–Japan industrial cooperation that would support American jobs and the parts industry.
Just as important was the labor settlement. In September 1983, Toyota reached an agreement with the UAW stating that “labor and management are partners for achieving shared goals,” which Toyota itself called a revolutionary labor-management agreement for its time.
The second step was going it alone. Camry production began at the wholly owned Georgetown, Kentucky plant in 1988, and Georgetown became Toyota’s largest production facility in North America.
The third step, and the one that matters most for this comparison, was putting capability in place and not just assembly. Toyota opened its Technical Center in Ann Arbor in 1977 and later set up the Toyota Supplier Support Center to share Toyota Production System knowledge with American firms. The Toyota Production System was not kept as a Japanese secret. It was taught to American suppliers.
It is worth being clear that Toyota did not start out fully localized. At NUMMI, Toyota initially imported engines, transmissions, and other key functional components from Japan, sourcing only items like glass, interior trim, and paint locally. What set Toyota apart was the direction it took over time: the higher-value parts of the chain moved toward the host country.
The results four decades later speak for themselves:
- Toyota describes its total U.S. investment as reaching nearly $60 billion since it began operating in the U.S. nearly 70 years ago, with roughly 48,000 direct U.S. employees and more than 35 million vehicles built across 11 U.S. plants.
- Toyota Motor North America reports more than $50 billion a year in domestic parts purchases, with about 75 percent of a typical vehicle’s content coming from outside suppliers and more than 1,000 supplier locations in North America.
- Imports accounted for only about one-fifth of Toyota’s U.S. sales, which is why the 2025 tariffs did not knock it off course. Toyota sold 2,518,071 vehicles in the U.S. in 2025, with electrified models making up 47 percent.
And the battery, the part of the vehicle where BYD’s model is most concentrated, is the part Toyota is now putting on American soil. Toyota Battery Manufacturing North Carolina, in Liberty, is Toyota’s first in-house battery plant outside Japan, a $13.9 billion facility with 30 GWh of annual capacity and 14 production lines at full build-out, with up to 5,100 jobs planned. Alongside it, Toyota committed up to $10 billion in additional U.S. investment over five years, starting with a $912 million hybrid-capacity investment across plants in West Virginia, Kentucky, Mississippi, Tennessee, and Missouri.
This is what insourcing looks like once it has matured.
The host country does not just get a factory. It gets suppliers, engineers, a research base, battery capacity, and a political constituency in a string of states that has a direct stake in the company doing well.
Put simply, Toyota turned a trade problem into a domestic interest.
What BYD Is Building
BYD faces a similar political problem on a much larger scale. Its answer is shaped by different origins, different incentives, and a different relationship with its home state.
The scale is remarkable. In the first nine months of 2026, BYD sold 1,342,960 vehicles overseas, up 92 percent, or 43 percent of its total sales, while domestic sales fell by a third. Management has raised its 2026 overseas goal to 1.9–2.0 million vehicles and is targeting more than 2.5 million in 2027. That is well above the 1.6 million figure I cited only weeks ago. In the first half of 2026, overseas revenue exceeded domestic revenue for the first time.
The motive is different too. Toyota went to America because America was the market that mattered and Washington was turning hostile. BYD is going abroad because the market at home is breaking down. A brutal domestic price war has made exports less a strategic choice than a financial necessity.
BYD is also building factories abroad, and that might look like the Toyota model.
The difference is in what those factories contain.
In Brazil, BYD took over the former Ford complex at Camaçari in Bahia. The company says the first phase starts with SKD assembly of imported kits, with full local production to follow. BYD’s Brazil chief has called SKD “a transitional regime” and set a target of 50 percent local content, counting both in-house production and Brazilian suppliers, by January 2027. Stamping, welding, and painting are only now coming online, and battery-pack assembly is the next layer of localization.
The Camaçari plant has also put labor relations at the center of the story, as NUMMI did, but in the opposite way. In December 2024, Brazilian labor inspectors shut down the construction site and rescued Chinese workers found living in degrading conditions. In April 2026, Brazil’s Labor Ministry added BYD to its national forced-labor “dirty list”, and within days a court removed it. BYD says the abuses were the contractors’ responsibility.
Whatever the legal outcome, the contrast with Toyota’s approach is clear. Toyota began its American production with a written partnership with American labor. BYD began its Brazilian production by bringing in its own construction workforce under conditions the host government judged unlawful.
In Europe, BYD’s first passenger-car plant, in Szeged, Hungary, began trial production in January 2026 with 960 employees, and vehicle assembly is now expected in November or December. Local production lets BYD avoid the EU’s roughly 27 percent duty on Chinese-built battery-electric vehicles.
Meanwhile, BYD paused its planned plant in Turkey to concentrate on Europe.
The pattern is consistent.
The factory is placed where the tariff wall is. Final assembly moves to the host country.
The cell, the chemistry, the battery-management software, and the mineral processing behind them remain anchored in China, which is what makes the low price possible in the first place.
Two Logics of Localization
Both companies “localize.”
But they mean different things by it.
| Toyota in America | BYD in the Global South and Europe | |
| Trigger | Political backlash and export restraints in a market it saw as strategically central | Tariff walls abroad and a collapsing price war at home |
| First move | Joint venture with an American incumbent; partnership agreement with the UAW | Brownfield takeover and kit assembly; reliance on Chinese contractors and staff |
| Direction over time | Higher-value work moved to the host: R&D, suppliers, production know-how, now batteries | Assembly and some parts move to the host; cells, chemistry, and software stay home |
| What the host gets | An industrial ecosystem and a domestic stakeholder | Jobs and investment headlines, with dependence on a chain that ends in China |
| Political result | Trade friction became a home-grown constituency | Trade friction is absorbed through deals with host governments |
The key distinction is not between localizing and exporting.
It is between localization that transfers capability and localization that keeps capability at home.
Toyota taught the Toyota Production System to American suppliers. BYD’s vertical integration, the very thing that makes it so competitive, works against that kind of transfer. A company that makes nearly everything itself has little reason to build up an independent local supplier base that could, in time, sell to its competitors.
There is also the question of the home state. Toyota went to America as a Japanese company whose government was a U.S. ally and was itself negotiating the terms of trade restraint with Washington. The arrangement unfolded within an alliance.
BYD goes abroad as a national champion of a state whose larger strategy, as Maxwell and I have argued, is to build an informal empire through control of value chains.
That shapes how host governments ought to read each new factory.
Will BYD Follow Toyota’s Path?
Toyota also started with imported engines and transmissions. BYD’s Brazilian targets for local content and battery-pack assembly show that it is moving down the localization path. Host governments in Brasília, Budapest, and Bangkok are actively bargaining for more. BYD may well find, as Toyota did, that staying in a market for the long term requires putting down deeper roots.
But three differences suggest that the trajectories will not converge on their own.
First, timing. Toyota localized over decades, in a market it treated as its strategic center. BYD is building plants on several continents at once, under financial pressure, and with export volumes that require speed rather than depth.
Second, the core of the product. In the internal-combustion era, the engine was the heart of the car, and Toyota eventually built engines in America. In the electric era, the heart of the car is the battery cell, and the cell is exactly the piece that China’s processing dominance keeps at home. Localizing the body shop is not the same as localizing the heart.
Third, the home-state incentive. A Japanese firm moving know-how into allied America ran with the grain of Tokyo’s interests. A Chinese national champion moving cell chemistry and processing capability abroad runs against the grain of Beijing’s.
That is why host-government policy matters so much. Toyota did not insource purely out of goodwill. It insourced because American political pressure, read correctly by strategists like Malmgren, made insourcing the rational choice.
If middle powers want BYD’s factories to evolve toward the Toyota model, they will have to apply the same kind of pressure.
That means local-content rules tied to cells and processing rather than final assembly, enforceable labor standards, and supplier-development requirements that make capability transfer the price of market access.
Conclusion
Harald Malmgren’s advice to Toyota was strategic, not just commercial. He understood that a foreign company’s long-term place in a market depends on whether it becomes a stakeholder in that country’s economic future or remains an outside supplier to it.
Toyota chose to become a stakeholder. Four decades later it is an American manufacturer by almost any practical measure, and it is now building batteries in North Carolina.
BYD has so far chosen something else: a global footprint of assembly plants connected to a value chain whose most important parts stay in China. That is a highly effective way to sell cars. It is also, as I argued in the earlier piece, a way of building dependence one vehicle at a time.
The contrast gives governments a practical test.
When a foreign automaker breaks ground in your country, the question is not just how many jobs it promises.
The question is whether, twenty years from now, the engineers, the suppliers, and the core technology will be yours.
Toyota’s American history shows that the answer can be yes.
BYD’s global expansion shows that it will not be yes by default.