"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."
-- Toyota CEO Akio Toyoda
It's a no-brainer to see what Palo Alto, Calif.-based Tesla gets out of this deal: a huge credibility boost from the association with Toyota and a world-class factory right in its Silicon Valley backyard just as it's putting the finishing touches on its upcoming IPO.
But why would Toyota do this? It's not like it needs Tesla's technology. The Japanese giant is already one of the world's leaders in hybrid and electric vehicle technology -- maybe the leader, arguably ahead of key rivals Honda
So what happened?
Akio Toyoda, car geek?
The story making the rounds is that Toyota CEO Akio Toyoda, a sports car enthusiast, let it be known that he wanted to test-drive a Tesla Roadster. Tesla CEO Elon Musk, smelling an opportunity, jumped to make it happen, with himself in the passenger seat. Toyoda was impressed with the car and with the company's attitude, and offered Tesla a small (by Toyota standards) investment and a deal on the NUMMI plant.
It might have been that simple; Toyota making a modest venture investment in a company that avidly follows monozukuri, Toyota's much-lauded approach to manufacturing. And while the quote from Toyoda at the top of this article sounds like typical Japanese executive boilerplate, there is merit to the idea that a large organization can be energized by association with a small, entrepreneurial company.
But there were some more concrete motivations for Toyota here:
Solving the NUMMI problem. Toyota's decision to close NUMMI earlier this year -- the company's first-ever factory closing -- was wildly unpopular in economically hard-hit California, and was a frequent bone of contention during congressional hearings. Having it reopened should restore some of that lost goodwill, even if only a fraction of the plant's 4,500 former workers are employed at first.
Green goodwill. Toyota has gone to great lengths in recent years to paint itself as the greenest of the big car companies. Investing in Tesla will only burnish those credentials, at a moment when Toyota's credentials can use all the burnishing they can get.
- Solving the NUMMI problem, part 2. It's not news that auto sales in the U.S. are running sharply below precrash levels. Right now, Toyota has more North American manufacturing capacity than it can use; that's why NUMMI was closed. Since NUMMI is a big factory, much bigger than Tesla really needs, it's possible that Toyota is using this deal as a way to hold it in reserve. Should sales pick up, Toyota might be able to build vehicles alongside Tesla's operations.
Long story short, the investment makes sense for Toyota from a number of different perspectives. But what does it mean for Tesla? And more to the point, what does it mean for investors pondering Tesla's upcoming public sale of shares?
Open questions for Tesla
Details of the deal haven't yet been revealed, probably because they're still being worked out; Toyoda's test-drive reportedly happened just a few weeks ago. One thing we do know is that it may be awhile before Tesla actually sees Toyota's cash. Toyota's investment will be made in a private placement that is set to close immediately after Tesla's IPO closes. The IPO is expected later this year, but no date has been announced.
Clearly, the Toyota link and the NUMMI factory make Tesla's IPO seem like a better bet today than it did a few months ago. But there are still unresolved questions. For instance, where does Daimler
One last thought. Tesla has portrayed itself as a different kind of car company -- a smart and flexible Silicon Valley start-up, not a hidebound Detroit colossus. But NUMMI's labor force -- skilled, local, and presently unemployed -- was represented by (speaking of Detroit colossi) the United Auto Workers. Rehiring some of those folks seems like a smart move, but it probably means a UAW contract, with all of the baggage that that entails.
Is Tesla ready to go there? We'll find out soon enough.
Fool contributor John Rosevear owns shares of Ford, which is a Motley Fool Stock Advisor choice. You can try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.