Toyota Benefits From Relationship With Tesla

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The relationship between Toyota and Tesla Motors will soon bear fruit. The two companies will be bringing RAV4 EV back from the scrap heap upon which it was tossed in 2003 after only a short time on the market. Tesla Motors will provide the powertrain for the all-electric small SUV.

Toyota made a small ($50 million) investment earlier this year in Tesla Motors, and Tesla in turn contracted to use part of Toyota’s NUMMI manufacturing plant to produce vehicles. That announcement could not shore up the fast decline in Tesla’s stock price, which topped $30 in the first days after its IPO, bottomed out at less than $15, and rebounded to $20 Friday on the news.

The impact of participating in the successful launch of the RAV4 will go far beyond the direct revenue that Tesla Motors will receive. The RAV4 EV was much loved by the EV community, and having “Tesla inside” could broaden the company’s appeal to the diehard audience of EV enthusiasts. Since the RAV4 EV is likely to cost a fraction of the Roadster or Model S, after the 2012 launch, Tesla will have proven that they can manufacture a drivetrain at a competitive price. Toyota’s decision to go outside for an electric drivetrain for a significant model in its fleet reflects a change in strategy and shows considerable confidence in young Tesla. Despite recent troubles, Toyota isn’t known for doing things halfway, and Tesla probably could not have picked a better partner to indicate the quality of their technology.

This could be the beginning of the transition of Tesla Motors from EV maker to EV technology developer, which likely increases the company’s long term prospects. Licensing its drive propulsion technology and packaged battery systems is likely a better match for Tesla’s core competency than trying to be a bumper-bumper automotive OEM. As a company with Silicon Valley roots, Tesla Motors’ management should be familiar with startups changing their business plans and letting more experienced companies take on the role of marketing and distribution.

Tesla Motors faces competition from a highly divided market of electric drive train manufacturers which includes AC Propulsion, UQM Technologies, Quantum Fuel System, EEtrex, as well as ISE Corporation, Eaton, which are focused on the bus and truck markets. There is no dominant player in the light duty vehicle market today, so Tesla is not coming in at a huge disadvantage.

Article by John Gartner, appearing courtesy Matter Network

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