Seeing Future in Fuel Cells, Toyota Ends Tesla Deal

As reported by the NY Times: Toyota said on Monday that it would allow a battery-supply deal with Tesla Motors to expire this year and would focus instead on building cars running on hydrogen fuel cells, a next-generation technology that rivals Tesla’s all-electric systems.

Toyota Motor invested $50 million in Tesla to acquire a 3 percent stake in the Silicon Valley upstart in 2010, and signed a $100 million joint-development deal in 2011 for a version of Toyota’s RAV4 crossover sport utility vehicle that carried Tesla’s electric powertrains. At the time, the two automakers suggested that the RAV4 electric vehicle could be the start of a wider collaboration.

But the electric RAV4 has sold poorly, despite low-cost lease and loan offers Toyota introduced last year to promote sales. And Toyota has increasingly signaled that it sees fuel cells as the most viable zero-emissions technology, putting it at odds with Tesla, an evangelist for electric-vehicle technology. Toyota is also the world’s biggest manufacturer of gas-electric hybrids.

Toyota said in an emailed statement that it was “re-evaluating” its RAV4 electric vehicle, and that Tesla’s supply agreement for the model would “conclude this year.” Toyota said that its contract had called for Tesla to supply 2,500 battery-electric powertrains for the RAV4.

The Japanese automaker said its focus this year would instead be on its four-door sedan powered by hydrogen fuel cells, which it plans to introduce in California next year. The automaker will also focus on developing hydrogen refueling stations to support fuel-cell technology, it said.

Tesla said Friday in a regulatory filing that it expected the supply deal to end this year. Toyota said it would keep its stake in Tesla for now.

“It’s obvious Toyota doesn’t see a market for electric vehicles,” said John O’Dell, green-car analyst at the auto-research site Edmunds.com. “They really see the future of the zero-emission vehicle as the hydrogen vehicle,” he said.

“In partnering with Tesla, there might have been a message there that Toyota was looking at the possibility” of a wider partnership with the Silicon Valley manufacturer, he said. “But they can’t even give these cars away. Why continue doing this?”

The winding down of the supply deal comes just four years after the two automakers announced their partnership to much fanfare, in May 2010, when Tesla bought an assembly plant in Fremont, Calif., that Toyota had closed.

The plant had been the site of a joint venture between General Motors and Toyota. But G.M. ceased production there during its bankruptcy and restructuring in 2009, and Toyota closed the factory a year later.

In return, Toyota agreed to buy $50 million of Tesla common stock and said the companies intended to cooperate on the development of “electric vehicles, parts and production-system and engineering support.”

That came as a surprise to analysts, as Toyota executives had long talked down the all-electric car in favor of the company’s own gas-electric hybrid technology, which cost the automaker millions of dollars to develop.

And yet as momentum built in recent years around all-electric powertrains, Toyota was increasingly criticized for lagging behind in a crucial automotive technology. In 2010, Nissan released the Leaf, which it billed as the world’s first mass-produced all-electric car. General Motors followed with its plug-in Chevrolet Volt.

Toyota, for a time, appeared to be hedging its bets. In a joint news conference with Tesla in 2010, Toyota’s chief executive, Akio Toyoda, said the market had not yet chosen the best low-emissions technology. He said the company was preparing for all options.

“When customers do give us their answer,” Mr. Toyoda said, “I want the company to be ready.”

Toyota introduced its own all-electric vehicle in 2012, a car based on its iQ ultra-mini compact that the automaker developed independently. But Toyota has limited sales of that car to fleet customers. At the same time, electric vehicles have struggled to reach the mass market, hindered by consumer concerns over their range and high cost.

Alec Gutierrez, senior analyst for Kelley Blue Book, said he did not see the deal’s end as a tremendous blow to Tesla. The boutique automaker would just shift its attention to the Model X sport utility vehicle, he said, which it is set to sell next year. Still, it came as a disappointment, he said.

“There was a hope that this would have taken off and that Toyota would plan a mass-market vehicle,” he said. “But now they’re heading in two different directions.”