Mazda and Toyota have announced a financial partnership. Toyota will take a 5% stake in the smaller company and Mazda will obtain a 0.25% stake in Toyota as a result of the deal. The two companies plan to construct and jointly operate a new manufacturing facility in the United States at an undisclosed location. The new factory will make Toyota Corollas, a new Mazda crossover SUV, and possibly an electric car at some point in the future.

2016 Toyota Corolla 50 MPG

Production at the new factory, which will cost $1.6 billion and employ an estimated 5,000 workers is slated to begin in 2021. It will have a maximum capacity of 300,000 vehicles a year. The news is a bit surprising, given that sedan sales are plummeting in the US market but Mazda could benefit greatly from the deal. It currently has no manufacturing facility in the US.

Mazda lacks the development budget needed to create electric cars on its own and could benefit greatly from Toyota’s massive R&D resources. Until this point, Mazda has been content to focus on new ways to squeeze more miles per gallon out of internal combustion engines with fewer exhaust emissions, but that strategy will only take the company so far. It will need electric cars in order to compete with other manufacturers in coming years.

There are political and strategic considerations to the arrangement as well. Mazda enjoys an excellent reputation for building reliable cars. It could be a tasty takeover target for some tech company that wants to jump into the electric car game and needs a production facility ASAP. Mazda has just such a factory in Mexico.

“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,” says CLSA managing director Chris Richter. “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.”

For its part, Toyota has just built a new $1 billion factory in Mexico, but is eyeing the maelstrom taking place in the White House with anxiety. It was planning to build Corollas at the new factory but now says it will manufacture its Tacoma pickup trucks there instead and use the new US factory for its Corolla line.

Toyota has forged alliances with other Japanese car makers. It owns 16.5% of Subaru and is about to partner with Suzuki to take advantage of that company’s expertise in Asian sales. It has spent a lot of money on fuel cell development but now seems to realize it risks being left at the altar if it does not jump into the electric vehicle mix soon.

The Corolla was also jointly produced with General Motors back in the 1980’s and 1990’s. The two companies were partners in the NUMMI factory in Fremont, California that eventually became the manufacturing location for Tesla Motors. The Toyota Corolla has survived for more than 50 years in one form or another, proving just how tenacious gasoline powered vehicles can be. ‘

Source: Reuters