Toyota (NYSE: TM ) and Tesla Motors (NASDAQ: TSLA ) have been going steady since 2010, when Toyota coughed up $50 million for a 3% stake in the electric-car maker. At the time, Tesla's award-winning Model S sedan was merely a twinkle in CEO Elon Musk's eye. Toyota's multimillion-dollar investment gave the upstart company the credibility it needed to get its business off the ground. Toyota and Tesla's relationship continued to blossom as the two auto companies agreed in 2011 to a three-year, joint development deal under which Toyota would pay Tesla $100 million to supply electric powertrain components for the Japanese carmaker's zero-emission RAV4 SUV.
Thanks for the memories
With that three-year period now ending, Toyota has said that it will not renew its contract with Tesla Motors.
The auto giant today builds more gas-electric-hybrid cars than any other car manufacturer in the world. Toyota plans to shift its focus from electric-powered vehicles to those powered by fuel cell technology. Down the road, Toyota also intends to build out hydrogen refueling stations, according to The New York Times.
It would hardly be indulgent for Tesla investors to feel burned by this news. The tie-up between Toyota and Tesla, after all, was long viewed as the first phase of what might one day become a rich history of successful collaborations between the two companies. On top of this, the divorce could lead investors to lose faith in Tesla's vision of mass-market adoption for electric vehicles -- particularly if they believe that this is Toyota's way of saying that it sees a future in which fuel cells reign supreme over all-electric technology.
While Tesla continues to grow sales of its Model S, revenue from the deal with Toyota was a welcome input to its bottom line. In the first quarter of fiscal 2014, for example, Tesla earned $15 million in revenue from Toyota powertrain sales. With the partnership ended, Tesla will need to work to maintain its other strategic relationships with companies, including Panasonic and Daimler.
Tesla recently began making electric powertrains and battery packs for the Mercedes-Benz B-Class electric vehicles. This will no doubt be an important partnership for Tesla, especially now that Toyota is out of the picture. For now, Toyota said it would keep its initial $50 million in Tesla stock regardless of its powertrain supply agreement ending. Meanwhile, with plans for a multibillion-dollar battery factory and the highly anticipated launch of its Model X crossover EV, Tesla certainly has enough on its plate to keep it busy -- even without Toyota's business.
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