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Looking into the future of the Tesla-Toyota partnership to see what must happen for this high-stakes venture to succeed

Harley Shaiken, director, Center for Latin American Studies, professor in education and in geography | May 24, 2010

Tesla Motors, an electric vehicle start-up, and Toyota, the world’s largest automaker, startled many by announcing a strategic partnership to build electric cars in the recently mothballed NUMMI auto factory in Fremont, CA.  Amidst dismal employment numbers – more than one out of five California workers are either unemployed or underemployed – this new venture promises 1,000 jobs within two years and, if it succeeds, the possibility of many more down the road.

Plans now call for the sleek Tesla S – an electric sports sedan – to be built at NUMMI in 2012.  Tesla’s CEO indicated that the firm could put several hundred million of an already received $465 million federal Department of Energy loan to tool-up production.  In addition, Toyota will invest $50 million in Tesla – giving the start-up instant credibility – and the two companies plan to jointly develop new electric models even before 2012.

The CEOs of both companies – Elon Musk and Akio Toyoda – were at the announcement at Tesla’s Palo Alto headquarters as were Governor Schwarzenegger and State Treasurer Bill Lockyer, among others.  Everyone seemed to be basking in the glow of the overwhelmingly positive reaction, a welcome change for Toyota after the uproar over its recalls.

A scant seven weeks earlier the NUMMI plant was left for dead.  The final Toyota Corolla rolled down the assembly line April 1, idling almost 5,000 workers and threatening an additional 20,000 jobs throughout the state.

What caused this surprising rebirth in less than two months?  For one thing, the two CEOs reportedly hit it off at a dinner at Musk’s California home in early April.  It was more than the food or wine.  Toyoda was impressed with the entrepreneurial energy of Tesla and Musk saw the expertise, resources, and reach of Toyota.

Many worked to keep NUMMI open, but the unsung hero may have been Bill Lockyer.  When most political leaders wrote off the closure as inevitable earlier this year, Lockyer decided to appoint a Blue Ribbon Commission to see if the plant could be saved.

Commission members ranged from the Freemont Chamber of Commerce to the California Federation of Labor; from the Consumer Federation of California to the Sierra Club.  I was honored to chair it.  Earlier the United Auto Workers had mounted an innovative campaign to save the plant that generated broad community support.

Commission members delivered the report to high-level Toyota executives in Japan after its March 3 release. The report concluded that NUMMI was highly competitive and projected the plant “could become an anchor for research and development, as well as new suppliers linked to hybrids or electric vehicles.”   It added that Tesla and Toyota – then separate companies – “could serve as critical mass to lure new suppliers and spur the development of a new industry” in California.

This new venture is a promising, though high risk, first step.  The challenge now is to insure it succeeds and that its benefits are widely shared.

Four actions are critical:

  • First, state support will be essential to create a competitive context for the plant despite California’s traumatic budget woes.  The state and local governments, for example, own about 500,000 vehicles.  As they are replaced, the plant’s output should receive strong consideration to help the environment and create jobs.
  • Second, more models are vital to make the plant a going concern.  Assembling 20,000 Teslas annually – an uncertain number at best – amounts to less than five percent of capacity.  Toyota is key.  Akio Toyoda remarked that the company “is determined to continue its car-making efforts in the U.S.”  What better place than Fremont?  One model could be a jointly developed Toyota Corolla with a Tesla-inspired electric drive train, a natural for a plant that built Corollas.  Other Toyota hybrids or plug-in hybrids would also be excellent candidates.
  • Third, rehiring skilled and experienced NUMMI workers would get production off to a fast start. Toyoda stated that he was “extremely happy that the ‘DNA of car-making’ that the NUMMI team developed” would live on.  The Governor added “now we can bring [NUMMI workers] back because of this partnership.”
  • Finally, recognizing the UAW from the outset would be a powerful symbol of working together towards a green energy future.  The union has applauded the new venture and had an excellent relationship with NUMMI for a quarter century. In fact, it would be going back to the future since Toyota and the UAW were among the partners at the birth of NUMMI along with General Motors.

The future may be uncertain, but the possibilities are exciting and high-stake.  The day after this historic announcement, President Obama made this point clear in an unrelated event in Washington. “The nation that leads in the clean energy economy will lead the global economy,” he predicted, “And I want America to be that nation.”