Toyota and Mazda have confirmed a new "business and capital alliance," announced by the two companies on 4 August 2017. The alliance includes plans for a new US plant as well as sharing in several areas.
IHS Markit perspective
- Significance: Toyota and Mazda formally announced a new business and capital alliance on 4 August. The agreement includes each company purchasing shares of the other, a potential US plant, and technology development projects.
- Implications: The alliance can help these two automakers share the costs of a new US plant as well as development of advanced safety and connected technologies, and electric vehicle development. As Mazda has fewer resources than its larger partner, the agreement would appear to benefit Mazda more significantly.
- Outlook: The deal is structured in such a way that Toyota is not taking over Mazda, and the companies will leverage complementary strengths and share some development costs. For Mazda, this provides an avenue for increased in-car technology as well as US production in a way the company can afford. For Toyota, there is someone to share some cost burden, and the moves that are sparked by a new Corolla plant also will bring the company increased pick-up truck capacity.
Toyota and Mazda have formally announced the business and capital alliance plan that had been leaked the day before. In a statement and during a joint press conference, the two companies announced a deal that includes each buying shares in the other, as well as an agreement to explore a new greenfield US plant.
The capital portion of the tie-up gives Toyota 31,928,500 shares of common stock newly issued by Mazda, through a third-party allotment. The move will mean that Toyota owns 5.05% of Mazda, and it will cost Toyota JPY50 billion. Mazda will acquire "Toyota shares that are equivalent in value to the Mazda shares." Mazda will ultimately have 0.25% of Toyota's total shares; that deal will dispense treasury stock through a third-party allotment implemented by Toyota. The proceeds from the capital increase will, in part, fund capital expenditures for the new plant, according to the statement. "Both companies are to consider strengthening their capital alliance further, in line with the progress of their business alliance," the statement reads. The two companies expect the capital alliance to help advance and strengthen the long-term collaboration; it is also designed to preserve independence and equality for both companies
Toyota and Mazda itemised several points of collaboration. The most visible will be that the two have "agreed to explore establishing a joint venture plant in the US with equal funding contributions." The companies expect the plant to have capacity of about 300,000 units and plan to start operations in 2021. The two expect the plant to require investment of about USD1.6 billion and create 4,000 jobs.
Mazda plans to build "crossover models" new to the North American market, while Toyota plans to build the Corolla C-segment car. Mazda says that the US plant will "build a production structure to further growth in North America. These activities will allow the company to more quickly respond to its customers' needs depending on the region and model." Toyota believes the move will also enable it to further pursue management that is closer to the region and enable better response to North American market trends. Toyota also confirmed that the Corolla production in the US will replace earlier plans to add the vehicle to its Guanajuato, Mexico, plant. Toyota will instead build the Tacoma in Mexico, and said that it does not expect the change to have a substantial impact on the company's investment or employment plan there. Toyota earlier announced a USD1-billion investment for the new Mexico plant, which saw construction begin in November 2016. Production of the Corolla at Toyota's Mississippi plant is expected to continue. On the Mazda side, it is unclear which vehicle the company will produce; IHS Markit expects this to be a new, white-space vehicle in Mazda's range.
The two companies will also use their relationship to share development of electric vehicles (EVs), an area in which both companies seem largely behind the competition. Mazda does not offer electrification, but has made terrific strides with its lightweight and highly efficient SkyActiv engines and platforms. Toyota is strong in hybrids, expanding its plug-in hybrids and offering a fuel-cell EV, but had pursued hydrogen fuel-cell development in favour of pure battery electric vehicles. On this area, the joint statement says, "With increasing demand and expectations for electric vehicles worldwide, Toyota and Mazda are to explore joint development of technologies for the basic structure of competitive electric vehicles, mobilizing and exchanging expertise freely and actively. These technologies will allow the companies to respond quickly to regulations and market trends in each country. Specific details of the collaboration will be determined as the companies work together going forward."
As consumers are increasingly demanding connected vehicles and more sophisticated in-car infotainment and multimedia systems, Toyota and Mazda will work together in this area as well. Toyota will also "cooperate with Mazda" related to Toyota's vehicle-to-vehicle (V2V) and vehicle-to-infrastructure (V2I) technologies.
In terms of specific product development or architecture sharing, Mazda will continue to provide Toyota with a sedan based on the Mazda2, and Toyota will supply a compact commercial two-box van to Mazda in Japan. "Beyond this, the companies will further explore the possibilities of other complementary products."
In the statement, Toyota president Akio Toyoda said, "The greatest fruit of our partnership with Mazda is that we have found a new partner who truly loves cars. It has also sparked Toyota's competitive spirit, increasing our sense of not wanting to be bested by Mazda. This is a partnership in which those who are passionate about cars will work together to make ever-better cars. It is also the realization of our desire to never let cars become commodities." President and CEO Masamichi Kogai said, "Nothing would please me more than if, through this alliance, we can help to energize the auto industry and create more car fans by bringing together two competitive spirits to spur each other on, leading to innovations and fostering talent and leaders."
Outlook and implications
Much of what had been reported ahead of the deal announcement proved accurate. Expanding the relationship suggests the two companies are pleased with their progress to date, and the deal is structured in such a way that Toyota is not taking over Mazda. The two companies will be able to leverage complementary strengths and share some development costs, while maintaining independence. For Mazda, this provides an avenue for increased in-car technology as well as US production in a way the company can afford. For Toyota, there is someone to share some cost burden, and the moves that are sparked by a new Corolla plant also will bring the company increased pick-up truck capacity.
In agreeing to work together on infotainment and connectivity, as well as EVs, these two companies can ease the impact of development costs as well as perhaps speed development time and bring a stronger offering to market. Currently, neither company is at the forefront in development or execution in the infotainment and connectivity space. For Mazda, sharing these costs is likely critical. Although the company is profitable, its smaller size does mean it has fewer capital resources.
Relative to the new plant, it appears that the companies have not finalised a site, although some reports have indicated that the southeastern US might be targeted. A Reuters interview cites Toyota's US head, Jim Lentz, as saying that the facility would be located near Toyota's existing supply chain; Mazda does not currently produce vehicles in the US, so this solution would benefit both companies. Toyota's decision to move the Corolla to the US and add the Tacoma at Mexico will change the configuration of its North American manufacturing footprint. IHS Markit also believes Toyota may be considering adding a mid-size, Tacoma-based utility vehicle for North America – this is speculative at this point, and no such product is in current IHS Markit sales or production forecasts, however. Lentz also reportedly confirmed that the Mexico Tacoma production would enable the company to end the production of that truck in San Antonio (Texas, US), and allocate that capacity to the Tundra instead. These changes also do not affect Toyota's work to expand capacity for the Tacoma at the company's Baja, California, plant.
Missing from the current level of business alliance is any work on autonomous vehicles or mobility business services, with the exception of reference to the V2I and V2V technology. Many automakers have set up subsidiary businesses or projects to advance their interests, options and understanding of the potential disruption that cars-as-a-service might bring, including VW's Moia, GM's Maven, and Ford Smart Mobility, among others. Smaller Mazda has not acknowledged development in this area, while Toyota is using the Toyota Connected group for research in this space, as well as some projects within the Toyota Research Institute.
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