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

That would make it the first Japanese vehicle factory of its kind in China, according to the Nikkei.

Toyota declined to confirm the plan when contacted by AFP.

Public broadcaster NHK said Toyota hoped that building the new plant would help it catch up in the Chinese market.

China overtook Japan as the biggest vehicle exporter last year, helped by its dominance in EVs, a sector where Japanese firms have lost ground by focusing on hybrid vehicles.

Honda and Nissan, Japan's number two and three automakers after Toyota, agreed on Monday to launch talks on a merger to help them strengthen their position on EVs and self-driving tech.

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

Lacklustre consumer spending and tough competition in several markets is making life hard for many automakers.

But Toyota's strategy to offer a range of vehicles, including hybrids, has paid off in markets such as the United States.

The planned Shanghai factory would mainly produce Lexus models, the Nikkei said, adding that Toyota mostly sells Japanese-made Lexus vehicles in China.