Toyota is facing severe challenges in China. A recent report states that the Japanese automaker prematurely terminated the contracts for 1,000 workers in the world’s largest car market.

The brand’s joint venture in China, with state-owned Guangzhou Automobile Group (GAC), laid off workers over the weekend and offered them compensation, according to Reuters.

The publication spoke to three workers who shared information on conditions of anonymity. They were hired by labor service companies, and dispatched to a factory in the southeastern city of Guangzhou.

The GAC-Toyota factory reportedly employs around 19,000 workers and has an annual production capacity of one million vehicles, including models like the Camry, Levin (a renamed Corolla), and the all-electric bZ4X SUV.

Japanese automakers, including Toyota and Honda, have been among the laggards when it comes to electric vehicle adoption. Toyota could lose between one to three percent market share in China this year.

Chinese automakers have transitioned to EVs relatively faster, which could explain the increasing pressure faced by Toyota. Several brands like BYD, Geely, Changan Automobile, Xpeng, and Wuling, among others, have an early lead in the EV race in China.

Even Tesla has China as one of its biggest markets, and its Gigafactory Shanghai, which produces the Model Y and Model 3, is a major export hub.

In 2022, Toyota sold just over 4,000 BEVs in China, equivalent to the number of cars sold by BYD in just two days, or by Tesla in four days in the Chinese market, according to one report.

Toyota's woes stretch beyond slumping sales. The brand recalled more than 12,000 bZ3 electric sedans in China recently, due to defective rear door handles. The EV is developed by a joint partnership between FAW-Toyota and BYD.

Gallery: 2023 Toyota bZ4X in US specification

There’s also the Tesla-triggered price war which could be hurting Toyota. To boost sales, Toyota reduced the price of the bZ4X in China by about $4,000, with the SUV starting at 169,800 yuan ($24,660). The bZ3 starts at a similar price.

That said, Toyota has reiterated its focus on zero-emissions vehicles. The brand will launch 10 new electric models by the end of 2026, with a target of producing 1.5 million BEVs by the same timeframe.

It will also debut a new battery technology in a next-generation electric Lexus model, with a claimed range of 900 miles. The carmaker also claims to have achieved a breakthrough in solid-state batteries.

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