The Tesla-Toyota Electric Car Venture Is Sweet Vindication for Elon Musk


The announcement had all the makings of a classic California comeback. On May 19, Tesla Motors and Toyota (TM) unveiled a deal to restart production at the recently shuttered NUMMI car plant in Fremont, Calif., and use it to build electric vehicles together. The new joint venture would recreate 1,000 automotive jobs, giving jobs to 20% of the venerable factory's recently laid-off workforce. Toyota also agreed to purchase $50 million in Tesla stock in a private offering after Tesla's planned IPO later this year.

With this move, Tesla CEO Elon Musk has a chance to silence the critics of his company and his stewardship, blunting contentions that Tesla would have died without Uncle Sam's recent largesse. The main complaint: that Tesla, which has to date made mere hundreds of its six-figure all-electric sports cars, wasn't a real car company. And for Toyota, battered by safety recalls, the deal offers it a chance to boost its image in America and to buy into American technology and the spirit of Silicon Valley innovation.

Tesla -- and Toyota -- can only hope that this attempt to co-build cars at NUMMI has a better fate than Toyota's previous effort there. The New United Motor Manufacturing Inc. plant was originally a joint venture between the Japanese giant and General Motors that launched in 1984 and somewhat stubbornly survived for 25 years, producing a range of vehicles for both companies, including the Pontiac Vibe and Toyota Tacoma pickup. But the Great Recession, which clobbered the auto industry particularly hard (sending GM into bankruptcy), spelled the end of that experiment. NUMMI officially shuttered in 2010 and looked to be sold off -- until this new deal.

A Whole New Game for Carmakers

Still, the new joint venture is significant beyond the photo-op and the symbolism. That Toyota would buy into Tesla's technology and car development is an enormous stamp of approval and much-needed evidence that Silicon Valley's nascent green-car sector is actually going places. For American carmakers, the deal creates a potentially powerful competitor in the much-anticipated market for electric vehicles that remains tiny but is quickly growing. Toyota, which has deftly managed three different car brands for entry-level, mid-tier and luxury markets, will likely have little trouble managing a fourth brand.

Perhaps most important, the deal signifies that the smartest carmakers on Earth see the game changing permanently: The days of leisurely five-year development times for new products are numbered. Tesla famously conceived and built its first cars in less than half the normal development span for incumbent car companies.

The deal also neatly fills a hole in Toyota's portfolio, which includes the best-selling Prius but no all-electric vehicles. Rival Nissan will likely beat Toyota to that punch with the impending launch of its Leaf all-electric compact.

And for Musk, who has endured an uncomfortable public divorce and dispute with his ex-wife over ownership of shares in Tesla (which had been rumored to be a possible cause of delay for the planned IPO), the Toyota partnership is sweet vindication. Plus, it's a way to gain access to one of the best car manufacturing cultures on Earth. That's just what Tesla needs to scale up its assembly lines and start churning out cars.