Tesla and Toyota May Rekindle Joint Venture Romance

Source: Toyota

While delivering the first Model S sedans in Japan over the weekend, Tesla CEO Elon Musk indicated that his electric car company may once again sign on board with Toyota on a non-disclosed project, causing shares to lift in trading on Monday as investors began theorizing on what the possibilities could be. Most recently, Tesla supplied Toyota with the drivetrain underpinnings for Toyota’s limited-release, compliance-oriented RAV4 EV, production of which is soon coming to an end.

“If you look out maybe two or three years from now, I would not be surprised if there was a significant deal with Toyota and Tesla,” Musk told reporters in Tokyo. There are no definitive plans as of yet, but Musk said that he sees a larger project materializing — one larger than the joint RAV4 effort, which yielded about 2,000 units priced at about $50,000 each.

Toyota has since devoted the majority of its research and development to fuel-cell powered vehicles, while Musk has made it clear that he has no interest in such things, and he has actually attacked the company over its pursuit of hydrogen-powered cars. But as Apple and Samsung have proven, even companies at odds with one another can work effectively together.

Notably, Musk’s comments — which Tesla didn’t confirm or deny — come after the company announced that it would be building its enormous lithium-ion battery plant in Nevada. This is particularly important in Tesla’s future vehicle plans, but also in terms of its relationships with other automakers, as succinctly put by Barclays analyst Brian Johnson. 

“With Tesla, you can never rule anything out. The gigafactory is huge capex for Tesla, so the more outlets you can spread it to the better,” he told Bloomberg. “There’s also an interest in maintaining good diplomatic relations with Toyota.” Musk even said in Tokyo that Tesla has “a very good relationship with Toyota.”

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Tesla is also supplying the powertrain for the Mercedes-Benz electric B-Class compact, and though that project will be larger than the RAV4 EV, it likely still won’t be a mass-market campaign, as the car costs north of $41,000 and is more equipped to compete with BMW’s i3. Both cars have a range of about 85 miles and fall within the same price bracket.

A venture with Tesla could be quite useful for Toyota because it would allow the company, the largest automaker in the world, to compete in the battery-electric car space without having to invest the serious amounts of R&D, allowing it to focus on fuel cells while playing the BEV market simultaneously.

A potential deal could materialize in two to three years, Musk said in Tokyo. “There are still possibilities in certain areas of their operations especially in North America where we may find common ground,” he added. “It’s not like we have severed our ties.” Toyota took a $50 million stake in Tesla when the latter purchased the NUMMI factory in California as a part of the deal. 

A larger project with Toyota may also open more doors for Tesla, which will become the largest supplier of automotive-grade lithium ion batteries once the gigafactory is up and running. Now that Tesla’s patents have been made public, other manufacturers may be inclined to pursue the same path and use Tesla’s electric underpinnings in their own vehicles, assuming the company can show that it can handle more mass-market projects.