Toyota Buying Tesla Stake for Electric Car Tie-Up

Bloomberg / Business Week

Toyota Motor Corp., the world’s largest automaker, is buying a $50 million stake in the Californian electric-car maker Tesla Motors Inc. as automakers compete to offer low-polluting models in the U.S.

Tesla will also buy a closed Toyota joint-venture factory in California to build its Model S and other vehicles, Tesla Chief Executive Officer Elon Musk said yesterday. The companies said they’ll cooperate in developing electric cars, parts, production systems and engineering support.

The deal may help Toyota, the world’s biggest carmaker, compete with Nissan Motor Co. and General Motors Co. in selling electric cars in the U.S., where regulations on greenhouse gas emissions and fuel efficiency are pushing them to offer advanced vehicles. It may also help the Toyota City, Japan-based company’s image, battered by recalls, by reviving the New United Motor Manufacturing Inc. plant in Fremont, California, known as NUMMI.

“This seems like a good deal for both parties, especially Toyota, from being able to avoid the political fallout from shutting NUMMI down to being able to offer a new electric vehicle with just a low initial investment cost,” said Jeremy Anwyl, Chief Executive Officer at auto industry researcher Edmunds.com in Santa Monica, California.

Joining Daimler

The size of Toyota’s stake in Tesla hasn’t been fixed ahead of a share sale by Tesla, Musk said in an interview. Daimler AG in May 2009 invested about $50 million in Tesla, which is supplying battery packs to the Stuttgart, Germany-based company for a test fleet of electric Smart minicars.

In July, Daimler sold a portion of its share of Tesla to the German automaker’s largest investor, Aabar Investments PJSC, reducing its stake to about 5 percent.

Daimler “welcomed” Tesla’s partnership with Toyota, which “likewise has the goal of advancing electric vehicles,” said Brigitte Bertram, a Daimler spokeswoman for the automaker in Stuttgart, Germany. The Toyota-Tesla linkup “doesn’t impede” Daimler’s cooperation with the California automaker.

Toyota fell 1.9 percent to 3,355 yen in Tokyo, while Nissan dropped 3.4 percent and Honda Motor Co., Japan’s second-largest carmaker, declined 2.5 percent.

The tie-up brings Toyota, the world’s biggest seller of hybrid autos, together with Tesla, the only company now selling U.S. highway-legal battery-powered cars. Electric-car technology has been supported by U.S. policy makers including President Barack Obama as a way to reduce the nation’s oil use and dependence on foreign energy sources.

Obama set a goal of getting 1 million plug-in hybrids and electric cars on U.S. roads by 2015.

Nissan, GM

Nissan is preparing to introduce its Leaf electric hatchback, powered by a lithium-ion battery pack, in Japan and the U.S. this year. Nissan Chief Executive Officer Carlos Ghosn has set a goal of leading sales of rechargeable vehicles, which he estimates may make up 10 percent of global auto demand by 2020, and is spending more than 500 billion yen ($5.5 billion) developing electric cars.

GM plans to introduce its Volt plug-in car in October. The car will initially be marketed to drivers in California, which requires large automakers to offer some vehicles that emit little or no tailpipe pollution.

Toyota intends to offer a short-range, “urban commuter” electric car in the U.S. in 2012 and begin retail sales of a plug-in Prius hybrid the same year.

Toyota, which will continue to develop its own electric vehicle, said Tesla’s long-distance models give the Japanese automaker more options. Toyota said hybrids should remain a more practical option for most customers until electric cars become more popular.

Share Sale

Palo Alto, California-based Tesla has 2,000 reservations for the Model S sedan and intends to begin “volume” production of the car in 2012, with a projected annual output of as much as 20,000 a year. The company has delivered about 1,000 of its $109,000 Roadster electric sports cars, while losing more than $230 million.

Tesla hasn’t posted a profit in the six years since it was founded. The company plans to use proceeds from an initial share sale and a $465 million government loan to help produce the Model S, an electric car that is to cost less than $50,000 after a federal tax credit.

Fund Raising

Tesla aims to raise about $100 million from its share sale and has said it may use proceeds to pay for factories and equipment estimated to cost as much as $125 million this year, and for acquisitions.

“I’ve felt an infinite possibility about Tesla’s technology,” said Akio Toyoda, chief executive officer of Toyota, founded by his grandfather. “By partnering with Tesla, my hope is that all Toyota employees will recall that ‘venture business’ spirit.”

The company is backed by investors including Mountain View, California-based Google Inc.’s co-founders Larry Page and Sergey Brin, and the government of Abu Dhabi. Daimler, the world’s second-biggest maker of luxury vehicles, invested last May. Tesla said Musk told Daimler about the Toyota partnership on May 19.

The revival of NUMMI, for 25 years a joint venture between Toyota and the former General Motors Co., will create 1,000 jobs, California Governor Arnold Schwarzenegger said. The plant closed in April.

Daimler’s Smart Car Proves Not So Clever in Size-Obsessed U.S.

Bloomberg

Daimler AG’s two-year effort to win over U.S. drivers with a thrifty, plastic-clad minicar is running out of steam, adding urgency to the German automaker’s effort to find a partner for the Smart brand.

The U.S. debut of the urban two-seater is foundering after a promising start in 2008, when North American sales propelled Smart to its first profit. With just one model, the “ForTwo,” U.S. sales plunged 41 percent to 14,600 cars last year, more than the 15 percent decline by Daimler’s Mercedes-Benz.

“Smart’s not a car in the traditional sense, it’s a high- style alternative to public transportation,” said Jim Hall, principal of consulting firm 2953 Analytics who has worked with General Motors Co. and Toyota Motor Corp. on model development. “The problem for Smart is that fashion tends to be fleeting.”

Smart’s fading fortunes in the U.S. highlight Daimler’s need to find a partner to expand the model lineup and lower costs as it commits $2 billion to boost compact car offerings. The manufacturer is in talks with Renault SA and other carmakers on potential “close-knit” cooperation, Chief Executive Officer Dieter Zetsche said Dec. 17.

“The lack of success in small cars has been a big strategic weakness, and Daimler likely needs a partner to turn things around,” said Stefan Bratzel, director of the automotive institute at the University of Applied Sciences in Bergisch Gladbach, Germany.

Cheaper Alternatives

The brand sputtered with new models, and consumers favored Bayerische Motoren Werke AG’s Mini. There are better-value alternatives to the ForTwo, which starts at $11,900, Hall said.

Smart’s weakening in the U.S. accelerated in the fourth quarter, when sales totaled 2,174, a 66 percent contraction from a year earlier. BMW’s Mini had 10,229 U.S. sales in the period, a decline of 24 percent. In December, Smart sales were lower than GM’s Saab, which is in the process of being closed or sold.

“Smart is very important for Daimler,” Bratzel said. “If you want to survive as a global carmaker, you need small cars because that’s where the growth is, especially in markets such as India and China.”

At the Detroit auto Show today, Smart will introduce a “chrome yellow” special edition and present a car-sharing project piloted in Austin, Texas. The size of the display is unchanged from a year ago.

The Right Stuff

“We still believe the Smart ForTwo is the right car at the right time in the right place,” said Ken Kettenbeil, a Smart USA spokesman.

Penske Automotive Group Inc., the sole Smart distributor in the U.S., moved on Jan. 4 to “reinvigorate” sales by naming Jill Lajdziak as president of Smart USA. The former general manager of GM’s Saturn aims to bolster awareness of the minicar.

“There is a definite ‘wow factor’ when people sit inside the car,” said Kettenbeil. “Many are surprised about the vehicle’s roominess.”

Daimler introduced Smart in Germany in 1998 and brought it to the U.S. 10 years later, achieving 24,662 sales that year. That helped the brand make its first profit, though Smart has never met an original global target of 200,000 deliveries a year.

The top markets are Germany, where sales rose 2 percent last year to 32,400 vehicles, and Italy, where deliveries declined 15 percent to 29,500. Global sales dropped 13 percent to 116,900. Smart sold 1,800 cars last year in China.

Daimler Results

Helped by a tripling of profit at Mercedes-Benz Cars, which includes Smart, Daimler ended a run of three quarterly losses in the third quarter as it targeted annual cost cuts of 5 billion euros ($7.2 billion). Boosted by new Mercedes models, Daimler may post profit of 1.76 billion euros in 2010 after an anticipated loss of 1.91 billion euros in 2009, according to the median estimates of 17 analysts surveyed by Bloomberg.

Daimler said Jan. 8 that a new look for the ForTwo should boost sales in the second half of 2010.

Even so, BMW is selling almost twice as many Minis and increasing production of the car, a retro version of an iconic compact. The Mini has been popularized in movies including the remake of “The Italian Job,” while the Smart appeared in new “Pink Panther” films with Steve Martin.

“It’s very difficult for Smart to duplicate the success of Mini,” said Rebecca Lindland, director of auto research at IHS Global Insight in Lexington, Massachusetts. “The primary characteristic of Smart is that it’s small. The primary characteristic of Mini is that it’s irresistibly adorable, with performance thrown in.”

Test Drives

Daimler expects a publicity boost when it rolls out a limited-series electric Smart in the U.S. and Canada in late 2010, and plans a push to get more drivers to test the ForTwo, similar to a 50-city road show in 2007.

The ForTwo, at 8 feet, 10 inches, is more than three feet shorter than BMW’s Mini. Some Americans are reluctant to buy minicars because they are overshadowed on the road by massive pickups and sport-utility vehicles.

“The car is just so tiny in the U.S.,” said Lindland. “I had a Mini and there were friends of mine who were afraid to drive with me.”

Smart’s U.S. appeal also may be suffering because consumers can choose alternatives like the Hyundai Accent, which seats five people and is more than 12 feet long, with a starting price that’s $2,000 less.

Swatch Venture

Smart began as a joint venture with Swiss watchmaker Swatch Group AG. Daimler took control in 1998 after a disagreement over developing a SwatchMobil model. Daimler is now looking for a partner with expertise in small cars to boost volumes and spread development costs, and aims to make a decision by June.

To improve U.S. prospects, Daimler is considering a four- seat Smart after it refreshes the current model. A previous “ForFour” was canceled in 2006 as part of a restructuring that ended production of a roadster and development of an SUV.

“It’s a tough sell,” said Lindland. “They’ve got to be really hopeful that gas prices increase or regulations change. Without that, consumer behavior isn’t likely to shift in Smart’s favor.”