Will Tesla and Toyota Really Charge Up the Electric Car Competition?

Tesla Model S
Source: Tesla Motors
Tesla Model S

At first glance, it looks like a win/win situation.

The partnership of Tesla and Toyotashould, on paper, help both companies.

Tesla gets to work with Toyota as it tries to make the transition from niche automaker to building electric cars for the mass public.

Toyota gets a little cash for its defunct NUMMI plant in California and a relationship with a budding player in the electric car race. If things go great, the two firms will build cars together and help each other flourish in the electric car market.

That's the plan on paper.

In reality, we're a long ways from seeing that happen.

As one auto industry veteran told me after hearing about the partnership, "These relationships rarely generate huge returns. Sounds good to say they are hooking up, but actually making it work is far different."

In other words, let's see if Tesla and Toyota are true partners developing electric cars.

Of the two companies, this helps out Tesla more than it helps Toyota.

It's buying into an established auto plant (NUMMI in northern California) where it can build its new model, the electric powered S sedan. The infrastructure is already there. Plus, Tesla should tap Toyota's manufacturing expertise so it avoids potential pitfalls that go with ramping up mass-market production.

What does Toyota get?

A $50 million stake in Tesla could pay off when Tesla becomes publicly traded, though at this point it's hard to say how valuable that will be. And it aligns itself with a player in the electric car business. The industry is still in its infancy, and Tesla has made great strides already. Work it can build upon in the future, and which Toyota should tap into.

All of this makes sense, but let's keep the partnership in perspective. In the auto business, this tie up of tie up is often announced with great fanfare, only to fizzle over time. Remember the partnership between Tesla and Daimler?

Let's see if the Toyota/Tesla relationship is different.


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