By Kevin Meyer
25 years ago Toyota and GM entered into a joint venture to produce small cars together. For GM it was an opportunity to learn about Toyota's production methods that created vehicles of far lower cost yet higher quality than GM. At the same time Toyota wanted to learn if those production methods could be applied to a North American workforce and culture. Toyota did learn from the experience and proceeded to open up many successful factories throughout the continent, although their executives did eventually lose their way in a focus on growth over customer value. GM never really got it. The joint venture, and factory, was closed earlier this year.
Along comes Tesla Motors, a company that has designed and is planning on manufacturing one of the most innovative lines of electric vehicles. The cars have created tremendous buzz thanks to their technological and design innovation. It's not every day that a car company has the luxury of an order backlog even before launch.
Over the last several months they have been shopping around for a factory, with the leading contender being a facility in Downey, California. Not anymore.
Enter Toyota and the old NUMMI facility.
Governor Arnold Scharzenegger leaked earlier today that Tesla Motors will be partnering with Toyota to build a new electric vehicle. Now, chief executive Elon Musk confirms that this is true — but that Tesla will also be acquiring the recently-closed NUMMI automotive manufacturing plant in Fremont, Calif., potentially bringing back thousands of jobs lost when that facility closed last month.
Acquiring NUMMI would appear to be a natural as you have an existing high efficiency facility with a large trained workforce only recently laid off. But a partnership with Toyota? Tesla vehicles are basically made by hand, and that would be an interesting application of Toyota-esque lean manufacturing. Not impossible, just interesting. But that's where someone had a bit of vision.
Tesla clearly realized that the Roadster and Model S weren’t going to cut it — not in a market where the Chevy Volt and Nissan Leaf are going to dominate at a lower price. Tesla would need its own sub-$30,000 car (which would sell for considerably less after likely rebates), in order to survive. But it couldn’t get its costs down on its own, so partnering with a major automaker seemed to be the best course of action. Toyota, which has had a decade’s headstart as the green car leader since the release of its hybrid Prius, was probably also shopping around for a bold, new play in the space to retain its throne.
The design of the car, which probably won’t be released today, will draw largely from an existing Toyota design, Musk says.
Tesla now has the ability to hit the true mass market to drive long-term growth, leveraging Toyota lean principles to create efficiency and value - assuming Toyota remembers how to focus on value over growth. And Toyota has a potential interesting addition to its portfolio.
Last week Toyota beat estimates and announced surging profits, something of a surprise considering the mess they've had over the past year. Now they are investing again.
Keep an eye on whether they focus on unnecessary growth or creating value for the customer in terms of desired new technologies, improving quality, and taking care of customers who have problems with their products. That will show whether the company is really back.