Recently, the auto industry has been abuzz over the partnership formed between Toyota and Tesla Motors to develop a passenger all-electric vehicle (EV) for less than $30,000. Additionally, Toyota has committed to purchasing $50 million worth of common stock immediately following the closure of Tesla’s IPO, on the condition that Tesla completes the IPO by December 31, 2010. The unnamed vehicle will consist of Tesla’s powertrain technology, with the rest of the car comprising traditional Toyota hardware and design. This move is a change in course for Toyota, since the automaker has stated in the past that it is unsure of the market potential for EVs, citing that the cost of the battery packs make the vehicles economically unfavorable. It’s possible Toyota feels its title as the greenest car company is being usurped by Nissan Motor with the early sales and hype of its EV, the Leaf. With the Mitsubishi Motors i-MiEV planned for pricing above $30,000, it is likely that the early EV market in the United States, such as it is (see the report “Unplugging the Hype around Electric Vehicles” – client registration required) will be dominated by Nissan and Toyota, as they will have the cheapest EVs on the market for the foreseeable future.
This transaction with Tesla provides a fast, low-cost, low-risk option for Toyota to enter the EV market. For the small price tag of $50 million, Toyota can lean on Tesla’s experience and avoid much of the R&D expense of developing an EV on its own. This is a bargain for Toyota, considering that General Motors advertised that it spent upwards of $1 billion developing the Volt. In exchange, Tesla is receiving validation from the Toyota name, along with the manufacturing and marketing support that Toyota is likely to provide. Perhaps most valuable to Tesla, the jointly developed vehicle will most likely be sold through Toyota dealerships, allowing it significantly greater penetration into the market. Meanwhile, Panasonic, which provides batteries both for Tesla and for Toyota’s Prius (see the October 21, 2009 LRPJ – client registration required), will strengthen its position in the vehicle battery market. The announcement is a clear win for all three parties involved. However, this news by no means implies that the Toyota EV will sell, since like all EVs it still faces many economic and behavioral hurdles to mass adoption (see the February 3, 2010 LRPJ – client registration required).
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