The world's top-selling automaker made the announcement as it hiked its annual net profit forecast to almost $30 billion as well as its revenue projection.

Toyota said it had "decided to establish a wholly owned company for the development and production of Lexus BEVs (battery electric vehicles) and batteries in Shanghai, China".

It said it aims to start production there after 2027, adding that the new plant will create 1,000 new jobs with an annual production capacity of approximately 100,000 vehicles.

The Nikkei business daily had reported in December that Toyota planned to build the Shanghai plant.

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.

Lacklustre consumer spending and tough competition is making life hard for many automakers worldwide.

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

Toyota said Wednesday it expects to log a net profit this financial year of 4.52 trillion yen ($29.5 billion), up from its previous forecast of 3.57 trillion yen.

It also hiked its full-year sales forecast to 47 trillion yen from 46 trillion yen.

The "upward revision incorporates progress in strengthening earning power, backed by improvement efforts including product competitiveness", the company said.

Unit sales rose for hybrid electric vehicles between April and December, Toyota said.

But over the same period, in China, total vehicle sales dropped from 1.5 to 1.4 million.

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

But reports this week have said these discussions could be on the rocks because Honda is offering to make its struggling rival Nissan a subsidiary instead.