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Toyota Is Giving Tesla Even More Room to Grow

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The bullish argument for Tesla Motors (NASDAQ: TSLA  ) centers on a path of massive future growth powered by the electric-auto maker's technological advantage over traditional auto giants. Bears often counter with a view that major automakers are readying their product lines to crush Tesla through massive economies of scale. But a recent development in the automotive industry just reduced this chance of competition for Tesla.

Not interested
When most people think of first-mover advantage in the field of environmentally friendly vehicles, Toyota (NYSE: TM  ) takes the top spot. Thanks to early movement in the hybrid field, the Toyota Prius has become one of Toyota's best-selling vehicles and a symbol for the entire hybrid-car movement.

But when it comes to electric vehicles, Toyota now appears to be plotting a different course. Recent comments from Toyota Chairman Takeshi Uchiyamada indicate a lack of interest in electric vehicles and a preference for gasoline electric hybrids and hydrogen fuel-cell vehicles.

Uchiyamada told those in attendance that Toyota hasn't developed a major all-electric product "because we do not believe there is a market to accept it." He added: "There are many more gains we can achieve with hybrids."

So it seems the automaker that pioneered the hybrid won't be coming for Tesla's market share any time soon. And even Toyota's Rav4 EV isn't developed entirely in-house by Toyota. In fact, many of its EV components come from Tesla.

While we can't rule out a move into electric from Toyota in the future, at this time it appears unlikely Toyota will use its massive R&D resources to launch an EV.

EV partners
Despite how critical first-mover advantage is in automotive innovation, not all other EVs are harmful to Tesla's growth. Mercedes-Benz, part of Daimler AG (NASDAQOTH: DDAIF  ) , is launching its electric B-Class hatchback.

Normally such a vehicle would be seen as another EV to crowd the market, but Tesla can benefit from B-Class sales as well. Why? Because Mercedes-Benz is sourcing EV components from Tesla. As B-Class sales rise, demand for Tesla parts increases boosting revenues at Tesla. In addition, if the B-Class is a major success, Mercedes-Benz may consider Tesla as a supplier for future Mercedes-Benz EV models.

It looks like a good deal for both partners. Mercedes-Benz can get its hands on top-notch EV components without having to pay for the massive R&D spending and while avoiding infringing on Tesla's patents. And Tesla gets to collect additional revenue from selling components into a market it would otherwise not yet be competing in anyway.

Open market
The development of a car or SUV generally takes at least a few years from plan to production. Tesla has first-mover advantage here with the Model S already in production and two other EVs in the pipeline and being actively developed. Toyota's approach may make sense for the company's own goals, but by leaving EVs alone, Tesla has even more room to move in. Investors should watch over the next few years to see whether Toyota changes its stance on EVs and what alternative-fuel vehicles the auto giant develops.

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Read/Post Comments (11) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On September 30, 2013, at 8:33 PM, coll1951 wrote:

    Toyota's done their research, the market is not with full electrics. First they are not non polluting, that's only in some one's dreams, those power plants burn something. Second all the Tesla blogs, claim that Tesla will be selling 500,000 units in 4 years. Toyota, doesn't even sell 500,000 Camry's a year, with an average transaction price of $22,000. Now Tesla will be selling 500K at $40K. They will also need to start building at least 4 more auto plants, immediately. Plus, when they get into the $40K price range, less than 20% of their new customers will qualify for tax credits, and after 200,000 units the tax credit disappear.

  • Report this Comment On September 30, 2013, at 9:13 PM, speculawyer wrote:

    Toyota certainly has a skunk works EV program. They just don't want to admit that plug-in cars are great because they are the Kings of hybrids and want people to keep buying their hybrids. Why would they want to cannibalize their profitable hybrid sales with unprofitable plug-in sales?

  • Report this Comment On September 30, 2013, at 9:31 PM, tgordi wrote:

    coll1951, the market was not with hybrid cars 10-12 years ago, either. But look where they are now, thanks to Toyota and partly Honda. When it comes to EV's polluting or not, there is a study done by the non-partisan Union of Concerned Scientists. They looked at where the electricity comes from, when looking at the emissions of EVs. They found that in states with most of the electricity generated by coal burning, EVs are at least as good as cars getting 35 mpg or above. Fortunately, most states have renewable energy in their portfolio, which changes the balance quickly to the favor of EVs. In states like CA, EVs are by far less polluting than any hybrid on the market. Now, with most states increasing their electricity generation from renewable energy sources through legislation, the advantage grows more in favor of EVs over time. Furthermore, many EV owners (including myself) have PV systems installed, practically driving these cars pollution free (and at very low cost).

  • Report this Comment On September 30, 2013, at 9:49 PM, SteveTG3 wrote:


    I see Tesla hitting 500K sales around the end of the decade. That would be roughly 100K model S/X combined, roughly 200K Gen III cars, 200K Gen III SUVs.

    As to Camrys... in the U.S. huge seller indeed at 3-400K per year... but that's roughly 90% of the cars global sales, it's hardly on the market elsewhere.

    The top two global sellers are the Ford Focus, and the Toyota Corolla, each over a million per year.

    I do indeed see the Gen III car and Gen III SUV having enough appeal to sell 200K each globally.

    The plant they have produced 500K cars when GM and Toyota were running it... you need to adjust your capex estimates for Tesla to hit these numbers from 4 new plants to 0 new plants.

  • Report this Comment On September 30, 2013, at 10:30 PM, redfox435cat wrote:

    I thought Toyota was spearheading the plug in hybrid model. That I would be very interested in. With that you can do all your in town short haul on electric power with little thought to long distance travel. Of course the secondary concern of the battery replacement cost comes into play still.

  • Report this Comment On October 01, 2013, at 12:02 AM, CrazyDocAl wrote:

    It's hard to look at the EV market and want to get into it. Tesla is struggling to break 20k cars sold this year, that's world wide. The backlog they once had is gone, the early adopters got their orders in. All the EV in the price range that most middle class could afford are selling at or below cost or throwing in things like free charging and batteries.

    Not a single EV car model is making a profit. They are currently being sold mainly in CA to get tax credits. I'm sure when the market does actually show signs of life Toyota will get in. For now I expect Toyota to continue to focus on what the market wants, hybrids.

  • Report this Comment On October 01, 2013, at 12:07 AM, gjsuhr wrote:

    Toyota has decided they can get the same range as a Tesla Model S with $20 worth of gasoline that costs Tesla $20,000 (or more) worth of battery. Whether they are right about that decision remains to be seen, but they have made a lot of smart decisions to become who they are, the worlds most valuable car company.

  • Report this Comment On October 01, 2013, at 1:42 AM, anniewyers wrote:

    Nikola Tesla's 1931 "Cosmic Ray Motor" allegedly used 12 Tubes, a Standing Radio Wave in a Black Box, the Antennae and a Tesla Turbine. Krypton Gas in a beam tube becomes radioisotopic and radioactive in the presence of Sunlight (Cosmic Rays) real or artificial. Krypton 85 is produced in nuclear reactors, as well as by cosmic rays.

  • Report this Comment On October 01, 2013, at 11:01 AM, N3ALICUS wrote:

    Crazy Doc, Tesla sales have actually been increasing each quarter, especially as they break in to new markets. Your "struggling" comment is a bit ridiculous. Any new company will start with few sales and grow to larger sales. Is this surprising to anyone?

  • Report this Comment On October 01, 2013, at 1:47 PM, jetamerica wrote:

    TSLA valuation is bizarre. A company with sales of $1.3 Bil. and a market cap of $23.5 Bil. TM market cap is 0.66 X sales of $290 Bil. versus TSLA $1.3. Multiply TSLA tenfold and you get to $13 billion sales to a market cap of $23.5-three times the ration of TM.

    It may be a good company with a good product-but cannot sell its at a profit, Ford sells 6.5 million units to TSLA 20,000 which might increase to 400,000 in 5 years when Ford will sell about 7.5 million or almost 20 times the volume.

    TSLA is may be worth about $40-$50 per share-with an outrageous market cap of $6 bil. even then

    This is the first time I have shorted a stocjk since TZOO which was also had a large number of insider shareholders and a large percentage of shorts. hat eventually dropped from $115 to $15. I expect TSLA to touch $200 and then drop like a stone. I plan to short more if I can get them at about $200

  • Report this Comment On October 01, 2013, at 6:19 PM, spawn44 wrote:

    Teslaites see Toyota's move as making room for them to grow. I see it as giving them more rope to hang themselves. When the stockholders quit believing Musk can walk on water the stock will come back down to earth.

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