Random thoughts on the new Toyota/Tesla ties

This has certainly been a banner week for totally unexpected, out-of-the-blue automotive tie-ups. It started with an Autoblog story posted at 4:38 PM Eastern Time (itself sourced from an SFGate report) stating that California governor Arnold Schwarzenegger had let slip that a 5 PM Pacific Time/8 PM Eastern Time press conference would announce a Toyota/Tesla joint venture, purportedly utilizing a 20-acre former NASA manufacturing site in Downey, California (just south of Los Angeles) for a factory. Two hours later (at 6:42 PM Eastern Time) an Associated Press via The Detroit News story stated that the project would, instead, revive the shuttered NUMMI plant in Fremont, northern California that built numerous Toyotas and General Motors-badged, Toyota-engineered vehicles. Toyota and Tesla teaming up would certainly be the most surprising bit of automotive news since word the day before that Volkswagen was set to buy a majority stake in famed carrozzeria Italdesign Giugiaro.

Watching the live webcast of the press conference courtesy of the Toyota USA Newsroom was a revealing view of the three leaders with a stake in this project. Having casually followed the Tesla startup saga, I was, frankly, biased against CEO Elon Musk. Seeing how moneyman Musk pushed out Tesla’s co-founding father and visionary engineer Martin Eberhard (now reputedly working with Volkswagen) and how Tesla has been something of an employment revolving door, plus word of Musk’s impending sure-to-be-messy divorce (reportedly because of his philandering), and I’d written him off as an arrogant, douchebag a––hole. Yet, the Elon Musk that launched the press conference came off as a nervous (understandable, given that this was a very significant and public moment for him) yet clear-spoken man. In short, he seemed more human and down-to-earth than I’d expected. Next came Governator Ah-nuld, sounding every bit the typical politician spouting off greenie platitudes (conveniently sidestepping the fact that he singlehandedly helped launch the civilian Hummer H1-as-macho status symbol movement) while throwing a veiled jab at carmakers (Tesla excepted) for resisting California’s sometimes ill-conceived and draconian emissions initiatives. Finally came Toyota president and CEO Akio Toyoda, who read his statement in clear, easily understandable English. (Excerpts appear in the Toyota USA Newsroom).

At 8:27 PM Eastern Time, with the press conference barely over, Sam Abuelsamid had already posted articles on both Autoblog and its sister Autoblog Green sites that are a concise, excellent summary of what the press conference revealed. As I watched the brief round of public questions, I was surprised to see that a major one was publicly unasked: What of Mercedes-Benz’s recent investment of roughly $50 million (coincidentally, the same amount Toyota will invest in Tesla once it makes its initial public stock offering) in Tesla to build a test fleet of electric Smart microcars that also gave the German carmaker a roughly 10% stake in the company? Fortunately, Camille Ricketts of GreenBeat, in her report was able to ask Elon Musk about this. He replied that “Daimler was informed of the agreement last night, and they have been overwhelmingly positive. We did not need to get their approval. They have actually been encouraging deals with other major manufacturers. It mitigates their risk, it’s good to have another major brand’s endorsement, and it won’t interfere with their relationship with Tesla”. Later, Alan Ohnsman of Bloomberg Businessweek quoted Mercedes spokeswoman Brigitte Bertram as saying that “Daimler welcomes Tesla’s partnership with Toyota, which likewise has the goal of advancing electric vehicles. The Toyota/Tesla linkup doesn’t impede Daimler’s cooperation with the California automaker”.

The Toyota/Tesla ties, then, set up quite an interesting web of connections. For one, the curious observation that you could, in a manner of speaking, purchase a Lotus Elise with either a Toyota gasoline engine or a Tesla electric powertrain (although Wikipedia reports that the Tesla Roadster only shares 6% of its parts with the Elise). Lotus’ Hethel facility in the United Kingdom assembles all Tesla chassis and complete cars sold outside North America, and Lotus ties to Toyota were briefly documented in a recent Kaizen Factor story. Thus, there’s a neat sort of triangular Toyota-Lotus-Tesla relation. More remarkable is the fact that both Mercedes-Benz and Toyota are now investing in Tesla. The Mercedes investment happened on 19 May 2009, a year and a day before yesterday’s Tesla/Toyota announcement, and the fact that Mercedes last month announced a partnership with Renault-Nissan brings about, via Tesla, a loose and tenuous connection between Toyota and its archrival Nissan. Much looser, admittedly, than Nissan’s licensed use of Toyota hybrid technology for its Altima Hybrid.

Press accounts report that Toyota and NUMMI (New United Motor Manufacturing, Inc.) President & CEO Kunihiko “Kent” Ogura first approached Tesla’s Elon Musk about taking over the Fremont, California plant last year, but Musk turned it down, saying it was way too large for his needs. This led to Tesla’s almost-done deal to refurbish the aforementioned Downey, California ex-NASA plant. Nevertheless, Akio Toyoda remained undaunted and asked to meet with Elon Musk on a trip to California by Toyoda. Musk agreed, inviting him to his house. Reportedly, the two hit it off quite well, claiming to “have a lot of things in common”, and leadfoot enthusiast Akio reportedly came away quite impressed by a drive in Musk’s personal Tesla Roadster. Akio Toyoda said that, “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.” Elon Musk, in turn, said that, “Toyota is a company founded on innovation, quality, and commitment to sustainable mobility. It is an honor and a powerful endorsement of our technology that Toyota would choose to invest in and partner with Tesla. We look forward to learning and benefiting from Toyota’s legendary engineering, manufacturing, and production expertise.”

An open question that remains is whether the United Auto Workers union will finagle its way back into the plant. A politically correct Elon Musk, when asked about this subject, said that he is “neutral” on the subject, but this author certainly isn’t. Toyota, throughout its North American plants, has proven that the UAW is an unnecessary parasitic leech. Here’s hoping that they don’t reorganize a Toyota/Tesla NUMMI. Yet, already, UAW President Ron Gettelfinger has done his bit of saber rattling. And James M. Amend and Christie Schweinsberg of WardsAuto.com are convinced that, ultimately, the union will prevail at NUMMI.

Overall, Internet buzz and commentary has been overwhelmingly positive on the deal, which is viewed as a win-win for both carmakers. Tesla, which has already seen a couple of serious financial scares, gains some solid financial backing, not to mention closer access to Toyota’s vast resources and much-improved credibility and viability. Toyota, meanwhile, revives the set-to-be-shuttered NUMMI plant, thus reversing the ill will among some Californians that the almost-shutdown engendered. And, speaking of California, the plant will, at first, call back barely 1000 of the roughly 4700 jobs lost by the winddown of the ‘old” GM/Toyota NUMMI, but Elon Musk optimistically predicts that the “new” Toyota/Tesla NUMMI will employ 5000, with another 5000 new jobs at its suppliers. Musk has stated that his goal is to transform NUMMI into the cleanest and greenest showpiece car plant in the world. A Reuters article places the price Tesla paid for the NUMMI facility at $42 million, half of which goes to Toyota and the other half to Motors Liquidation, the “old, bankrupt” part of General Motors.

Finally comes the question of what product will be built at the plant. Initially, it will be a roughly 20,000 per year run of Tesla’s second vehicle, the 5+2 hatchback Model S starting in mid-2012. The press conference revealed that vehicle discussions are still in the early stage, followed by a cryptic remark that “the Model S platform will spawn variants (a minivan, crossover utility vehicle and a utility van), but many of those might be preceded by Toyota models”. Another article by Camille Ricketts of GreenBeat claims that NUMMI will also build a new $30,000 Tesla-designed vehicle and a more affordable “third-generation” vehicle described as a sub-$30,000 electric car containing Tesla’s unique powertrain design, with everything else built by Toyota. She quotes Musk as saying that the latter “will draw largely from an existing Toyota design”. There was also talk of the Toyota-designed vehicles going on sale “in 4 or 5 years”. Yet, a week after the press conference comes word, via Tesla Motors’ revised S-1 filing for its stock IPO (Initial Public Offering) and the ever-informative Camille Ricketts of GreenBeat that Tesla doesn’t yet have any formal deal with Toyota to build a new electric vehicle. A passage from the revised S-1 clearly states that, “In May 2010, Tesla and Toyota announced their intention to cooperate on the development of electric vehicles. This may involve the production of vehicles or powertrain components. However, we have not yet entered into any agreements, including any purchase orders, with Toyota for such arrangements and we may never do so.” Further, if Tesla can’t get its act together and issue the IPO by 31 December 2010, Toyota is not obligated to invest the $50 million in Tesla.

Logo illustration by Matt Hardigree of Jalopnik.