Thoughts on the Toyota-Tesla Partnership

[OmarKareem]

My, how the automotive landscape has shifted. A few years ago Toyota was on top of the world, the darling of the press and public. Steadily increasing sales, reliability of its vehicles, as well as leadership in areas like the hybrid propelled the company. The glow of the Prius proved to be a powerful effect that lasted for years. The sky isn’t falling – the company achieved a profit in the past quarter, but there is no doubt the Toyota name has been tarnished

Then there’s Tesla, a start up company that formed out of nowhere in 2003 with a goal to sell mass-market affordable hybrids. To achieve that, the company worked in concert with Lotus to develop its first vehicle, the Roadster. It was always a difficult goal for the company to ever hope to achieve mass-market success without a large manufacturing partner

As such, along the way Tesla teamed up with Daimler. The company supplied Daimler with an electric drivetrain for the Smart, and Daimler in turn purchased a 10% stake in Tesla. There is a large amount of confidence being placed into Tesla – the Daimler investment, $465 million Department of Energy loan and now Toyota getting involved

The implications of the Toyota deal could have far-reaching effects in the future. For one, on Toyota’s part it is a de facto admission that they have fallen behind in the electric car race. Ironically, Tesla’s existence is what spurred on GM’s recently-retired Bob Lutz to push for the groundbreaking Volt extended-range electric vehicle to be produced. If a small start up like Tesla could do it, GM could – or so the thinking went. In typical fashion of GM years back, Toyota dismissed the Volt. Now, they are finding themselves behind the times as a raft of competitors prepare to introduce Volt competitors and pure electric vehicles

The thinking is that Toyota’s stake in Tesla could be a quick way for the company to get into electric vehicles. This deal helps to ensure Tesla remains around by having the backing of yet another large manufacturer, as a well as a manufacturing facility to produce Model S and its electric drivetrains

Toyota’s President Akio Toyoda made some interesting comments about the deal: “Through this partnership, by working together with a venture business such as Tesla, Toyota would like to learn from the challenging spirit, quick decision-making, and flexibility that Tesla has. Decades ago, Toyota was also born as a venture business. By partnering with Tesla, my hope is that all Toyota employees will recall that ‘venture business spirit,’ and take on the challenges of the future

Likely, Toyota will be taking a “wait and see” approach with this, letting Tesla undertake the hard task of getting the Model S on the road. If the company is successful, there is a good possibility of further cooperation. Maybe Tesla electric drivetrains in Toyota vehicles, a larger stake in the company? Who knows, there are a lot of potential outcomes

In the short term, the move is beneficial for Toyota in a few ways. it shows the company supporting alternative fuel efforts, as well as the positive PR in California by securing the future of the former-NUMMI plant in Fremont, California. To me, it comes across as a bit desperate. Regardless, it is good news for Tesla fans. The Model S and the dream of a new volume player on the electric car scene is closer than ever before