Did Toyota Motor Corp. Just Dump Tesla Motors Inc.?

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.

Source: Tesla Motors

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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  • Report this Comment On May 14, 2014, at 3:26 PM, tyler91988 wrote:

    Except Tesla dumped Toyota....

    The effort was to increase demand for their upcoming lineup of the Model X and Model E in 2016-2018. Also, it frees up their supply chain, which has recently been cited as having issues.

  • Report this Comment On May 14, 2014, at 3:30 PM, Capt601 wrote:

    no loss for Tesla. more of a loss for Toyota as they fall into the FCV trap. Big oil wants Toyota in FCV as they have moved into hydrogen production and see the money to be made on consumers. zero savings for consumers from gas prices, and hydrogen production pollutes even more than gasoline production.

    Maybe you should change your title to "did Tesla just leave Toyota in the 1990's". or you are too worried about shorting Tesla?

  • Report this Comment On May 14, 2014, at 6:24 PM, Cencio wrote:

    I agree it is a loss for Toyota, because it is driven by a foolhardy push into FCVs. It was not Toyota that gave the greatest boost to Tesla as a partner, it was and likely will continue to be Daimler.

  • Report this Comment On May 14, 2014, at 8:45 PM, RedHorse01 wrote:

    There is no story here, move on. Toyota was expected to drop Tesla once its h2 program neared. Short Toyota for a foolish move into hydrogen.

  • Report this Comment On May 14, 2014, at 9:07 PM, Jobs wrote:

    Hybird also production pollutes even more, but not as effective as some diesel, so it save your pocket not the environment.

    Tesla at least push solar energy forward.

    Tesla do better, good for America, more EV, less hybird, not good for Toyota.

  • Report this Comment On May 15, 2014, at 7:58 AM, envpilot wrote:

    It's more like Tesla dumped Toyota because they don't want to support competition (Rav4) for their upcoming Model X.

    Fuel cells are a dead-end.

    The whole point of electric cars is to be able to charge easily and not have to go to a filling station.

    I've had a Model S for over a year and haven't been to a gas station since.

    I plug in the car when I get home and forget about it.

    It takes 5 seconds.

    I'd never want to go back to having to drive to a station and waiting in line.

    Also, I would feel much less safe in a car with a high-pressure hydrogen tank than one with a battery.

    Fuel cars are also more complex, with more things to break.

  • Report this Comment On May 15, 2014, at 2:09 PM, btc909 wrote:

    Tesla dumped Toyota. The RAV4 EV was a total failure. The chop shop look didn't help it at all.

    Fuel cells are a joke unless you back it up with Nuclear to cover the electrical requirements for the conversion process to Hydrogen.

    Fuel cells are great for the service industry but not for the consumer. It's a whole new level of complexity that will probably require some serious training and tools to work on.

    The real money in Tesla is the batteries, not the cars.

  • Report this Comment On May 15, 2014, at 2:09 PM, btc909 wrote:

    I'm pondering, what if the 2017 Leaf uses Tesla batteries?

  • Report this Comment On May 15, 2014, at 3:11 PM, Pricha100 wrote:

    Fuel cells will never be the alternative when they still rely on digging up long dead plants and animals for the hydrogen and where so much energy is lost from well to wheel. Whereas right now you can power your Tesla from solar panels installed on your house if you want. Electric is the most sustainable and logical future. Hydrogen is at best a stop gap solution without the ubiquity of gas stations or the electric grid you can tap into from outlets available in every home.

  • Report this Comment On May 27, 2014, at 2:13 PM, fbuckly wrote:

    LOL !!!

    Toyota is so far ahead of Tesla and the rest of the automotive world.... there is a reason they dumped out and we will know in the next year or so..... About the Leaf comment... Nissan just hooked up with GM for Hydrogen cars and will be exiting from the battery powered leaf by 2017..... google Tesla and government 8 year loan, and subtract that amount from yearly profit for Tesla.... it is losing its ass. Telsa dumps Toyota, LOL..... Toyota has spent more money annually in research and development than every other car company combined for the past 20 years....

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Tamara Rutter

I've been an analytical writer for The Motley Fool since 2011. I cover the sectors of Consumer Goods, Technology, and Industrials. Connect with me on Twitter using the handle, @TamaraRutter -- I'd love to hear from you!

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