Electric car is the work of an unlikely auto team

It was over glasses of red wine on a May evening in Palo Alto, California, that Akio Toyoda, president of Toyota, and Elon Musk, founder of the electric vehicle start-up company Tesla Motors, first talked through the particulars of a partnership they had just announced.

By the end of their chat, according to Toyoda, they had settled on at least one project: an electric version of Toyota’s RAV4 sport utility vehicle. A mere six months later, the two automakers are set to show a prototype of an all-electric RAV4 at the Los Angeles Auto Show.

The car represents the real debut of this unlikely alliance, in which Toyota invested $50 million for a 3 per cent stake in Tesla and signed a $60 million deal to jointly develop an electric vehicle. Toyota is known more for rigid and methodical decision-making than for flair, while Tesla is the bold Silicon Valley upstart that sells $1,00,000 cars to George Clooney and Leonardo DiCaprio.

The prototype, developed at remarkable speed and based on the idea of a relatively affordable mass-market electric, indicates that each company is learning from the other. A commercial version is expected to reach the market in 2012.

Neither company has publicly discussed pricing, but electric cars tend to be more expensive than gasoline-powered ones. The base price for a 2011 gasoline RAV4 is in the $22,000 to $25,000 range.

“Speedy decision-making is part of a start-up’s DNA,” Toyoda said in a joint press conference with Musk in Tokyo to discuss the partnership. “That’s what we want to absorb.”

He added: “Remember, Toyota was once a start-up, too.”But more than a difference in cultures, the two companies share divergent views of the future trajectory of electric automobiles. Musk is a firm believer in a decisive swing toward electric cars, and would like to enter a wider market in 2012 with a cheaper electric car.

“In the long term, all vehicles will become electric,” he said last week in Tokyo. “It’s a question of when, not if, and we hope the transition will come sooner, not later.”

Caution
Toyoda and his colleagues are more cautious, with Toyota executives often talking down the all-electric car in favour of the company’s gas-electric hybrid technology. The company has invested millions of dollars in its Prius gas-electric hybrid and is not eager for a quick switch to electricity, analysts say. Toyota has said it will introduce hybrid versions of all of its models by 2020.

And yet, as momentum builds around all-electric power trains, Toyota has been increasingly criticised for lagging behind in next-generation automotive technology. Nissan Motor plans next month to start selling the Leaf, which it calls the world’s first mass-produced all-electric car. General Motors will soon introduce its Chevrolet Volt plug-in hybrid.

Toyota is also set to introduce its own all-electric vehicle in 2012, a car based on its iQ ultra-mini compact that the automaker is developing independently. But Toyota has signalled that it considers the iQ a niche car, one mainly tailored for short-distance commuters in Japan.|

Toyota is also leasing limited numbers of its new Prius plug-in hybrid to fleet customers, and is planning a wider commercial rollout in 2012. Compared with the original Prius models, the new one plugs into an electric socket and operates only on batteries at higher speeds and longer distances.

Toyoda said the market had simply not yet chosen the best low-emissions technology, which was why Toyota was preparing for all options. “When customers do give us their answer,” he said, “I want the company to be ready.”

Still, analysts say the electric version of the RAV4 — a mainstay in Toyota’s SUV lineup — could signal more openness by Toyota to the idea of electric power trains for more mainstream models.

In planning a RAV4 electric vehicle with Tesla, moreover, Toyoda has displayed his own signs of being star-struck. The chief executive warmed to the idea, officials say, when he was shown a letter written by Tom Hanks to ‘The New Yorker’, in which the actor talked enthusiastically about a previous electric version of the RAV4 that he bought in 2003.
That would have been one of the 1,500 or so all-electric RAV4s that Toyota leased from 1997 to 2003 in response to stringent but short-lived emissions regulations passed in California.

“The letter made an impression on him,” said Masami Doi, a Toyota spokesman. “It convinced him that Americans thought the idea of an electric RAV4 was cool.”

A bright spot
Toyota’s deal with Tesla has been a bright spot in an otherwise grim year for the Japanese automaker. Over the last 12 months Toyota recalled some 11 million vehicles for faulty gas pedals, floor mats that could trap accelerators, and braking and engine defects — each recall tarnishing the company’s once-sterling reputation for quality. As a result, Toyota’s US sales have fallen off, despite generous incentives.

The company’s $4.46 billion profit for the first nine months of 2010 trails Ford’s earnings of $6.37 billion and General Motors’ earnings of $4.77 billion during the same period, according to figures compiled by Bloomberg.

Tesla, meanwhile, is seeking to build credibility among investors as it struggles to become profitable.

Despite the attention it has brought, the company has sold only about 1,200 of its electric sports cars, and has never turned a quarterly profit since its founding in 2003. According to a May filing with the Securities and Exchange Commission, since its inception, Tesla had incurred cumulative losses of $290 million through March.
But the Toyota partnership is helping Tesla attract new investors. Earlier this month, Panasonic, the Japanese electronics company and the supplier of Tesla’s batteries, said it would invest $30 million in the start-up, acquiring an approximately 2 per cent stake.
Tesla’s share price has soared since its public offering on June 28, rising 80 per cent and reaching a new high of $30.80 on last Monday.

For now, Toyoda and Musk are at pains to demonstrate a mutual adoration. On his trip to Tokyo last week, Musk presented Toyoda with a Tesla Roadster painted wine red in a tribute to their meeting in California. Calling Toyota’s manufacturing technology “the best in the world,” Musk said Tesla had “a lot to learn” from the Japanese automaker.
Toyoda was also uncharacteristically expressive, vividly recalling his first ride in Tesla’s Roadster in May. “I could hear the wind as we drove,” he beamed. “I felt like I was on a yacht in the ocean.”