Toyota Is Giving Tesla Even More Room to Grow

The bullish argument for Tesla Motors centers on a path of massive future growth powered by the electric-auto maker's technological advantage over traditional auto giants. Bears often counter with a view that major automakers are readying their product lines to crush Tesla through massive economies of scale. But a recent development in the automotive industry just reduced this chance of competition for Tesla.

Not interested
When most people think of first-mover advantage in the field of environmentally friendly vehicles, Toyota takes the top spot. Thanks to early movement in the hybrid field, the Toyota Prius has become one of Toyota's best-selling vehicles and a symbol for the entire hybrid-car movement.

But when it comes to electric vehicles, Toyota now appears to be plotting a different course. Recent comments from Toyota Chairman Takeshi Uchiyamada indicate a lack of interest in electric vehicles and a preference for gasoline electric hybrids and hydrogen fuel-cell vehicles.

Uchiyamada told those in attendance that Toyota hasn't developed a major all-electric product "because we do not believe there is a market to accept it." He added: "There are many more gains we can achieve with hybrids."

So it seems the automaker that pioneered the hybrid won't be coming for Tesla's market share any time soon. And even Toyota's Rav4 EV isn't developed entirely in-house by Toyota. In fact, many of its EV components come from Tesla.

While we can't rule out a move into electric from Toyota in the future, at this time it appears unlikely Toyota will use its massive R&D resources to launch an EV.

EV partners
Despite how critical first-mover advantage is in automotive innovation, not all other EVs are harmful to Tesla's growth. Mercedes-Benz, part of Daimler AG , is launching its electric B-Class hatchback.

Normally such a vehicle would be seen as another EV to crowd the market, but Tesla can benefit from B-Class sales as well. Why? Because Mercedes-Benz is sourcing EV components from Tesla. As B-Class sales rise, demand for Tesla parts increases boosting revenues at Tesla. In addition, if the B-Class is a major success, Mercedes-Benz may consider Tesla as a supplier for future Mercedes-Benz EV models.

It looks like a good deal for both partners. Mercedes-Benz can get its hands on top-notch EV components without having to pay for the massive R&D spending and while avoiding infringing on Tesla's patents. And Tesla gets to collect additional revenue from selling components into a market it would otherwise not yet be competing in anyway.

Open market
The development of a car or SUV generally takes at least a few years from plan to production. Tesla has first-mover advantage here with the Model S already in production and two other EVs in the pipeline and being actively developed. Toyota's approach may make sense for the company's own goals, but by leaving EVs alone, Tesla has even more room to move in. Investors should watch over the next few years to see whether Toyota changes its stance on EVs and what alternative-fuel vehicles the auto giant develops.

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The article Toyota Is Giving Tesla Even More Room to Grow originally appeared on Fool.com.

Alexander MacLennan owns shares of Tesla Motors. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool recommends and owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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