Fear of falling behind in the growing global market for electric vehicles amid stricter regulation of emissions was apparently the impetus behind Toyota Motor Corp.’s capital tie-up Friday with Mazda Motor Corp.
Toyota said it will take a 5.05 percent stake in Mazda for ¥50 billion while Mazda will take 0.05 percent stake in Toyota.
Under this relationship, Toyota and Mazda will bolster their operations in the United States, their biggest market, and invest $1.6 billion in a new factory and create up to 4,000 new jobs.
The decision was welcomed by U.S. President Donald Trump, who had put pressure on automakers including Toyota to build the cars in the U.S. In a Friday morning tweet, he called it “a great investment in American manufacturing.”
Tougher carbon emissions regulations in Europe, the U.S. and China have spurred a global shift toward battery-powered cars. France and Britain pledged last month to halt the sale of vehicles running on gasoline and diesel by 2040. Starting next year, the state of California plans to require automakers to sell more zero-emissions vehicles such as EVs. Other states are expected to follow suit.
Neither Toyota nor Mazda’s lineups include EVs. Hybrids like the Prius, which Toyota has long marketed as its eco-friendly option, will not meet the stricter requirements, while its fuel cell-powered Mirai lacks cost-competitiveness.
Toyota’s first EV is expected to hit the road by 2020, while Mazda looks to release a model in the U.S. in 2019. Both know they will need a competitive edge to catch up.
Through the alliance with Mazda, Toyota aims to “develop the core technology for electric cars with a joint team of engineers from both companies,” President Akio Toyoda told a news conference in Tokyo.
Their foremost rival is Tesla Inc. Strong demand for Tesla’s luxury EVs pushed revenue in the first half through June this year to roughly double that of a year earlier.
Last month, the EV maker began shipping the Model 3 sedan, which at $35,000 is relatively cheap compared to previous models. General Motors Co. also released a less expensive model last year.
The Volkswagen group, the world’s largest automaker by sales volume last year, ramped up development of EVs in the wake of its scandal over the use of “defeat software” in diesel-powered cars to cheat emissions tests. It has announced a plan to add more than 30 models to its lineup and sell 1 million EVs per year by 2025.
Among Japanese carmakers, Nissan Motor Co. leads the pack with the Leaf, the newest version of which will be unveiled next month. Honda Motor Co. plans to sell a new EV in China next year using motors from its joint venture with Hitachi Ltd.
Automakers aren’t the only competition. Apple Inc. is reportedly developing an EV, and Alphabet Inc., the parent of Google Inc., is expected to power its self-driving cars with batteries.
A stake in Mazda may also prevent future incursions by tech companies, one analyst said.
“For a technology company which lacks the expertise in making cars, Mazda could look like a very interesting acquisition. They’re very good, they’re not too expensive. Maybe Toyota realizes this,” CLSA managing director Chris Richter said.
“By buying a 5 percent stake, Toyota takes Mazda off the table rather than having it sit out there like a free agent which could someday be used against them.”
Toyota’s presence in the U.S. has steadily increased in recent decades. From a company that imported all its vehicles from Japan, Toyota has transformed into a company building 70 percent in North America, its North America Chief Executive Officer Jim Lentz said.
“We have a lot of confidence in the U.S. economy,” Lentz said. “We have confidence that we are still going to see a strong auto industry.”
Purchasing stakes in other companies is not an everyday phenomenon at Toyota, which in recent years acquired a minority equity stake in Isuzu Motors Ltd. Almost five decades back, Toyota also brought Hino Motors Ltd. and Daihatsu Motor Co. into its fold as partners.