Toyota, Mazda unveil capital tie-up plans, US$1.6 billion joint plant eyed in US

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Toyota will obtain a 5.05 per cent stake in Mazda while Mazda will gain a 0.25 per cent stake in Toyota. With environmental regulations being tightened in many countries, competition over the development of vehicles with advanced technology has been increasingly fierce. The two Japanese automakers, which had been contemplating a possible business alliance, judged it necessary to strengthen their partnership.

According to Friday’s announcement by the two automakers, they have agreed to explore setting up a joint venture plant in the United States for which the two sides would contribute equal funding. The plant, with an estimated annual production capacity of about 300,000 units, will require a total investment of about $1.6 billion. It is expected to create up to 4,000 jobs.

The companies will begin to examine detailed plans with the goal of starting operations at the new plant in 2021. The two companies aim to dodge criticism from the administration of U.S. President Donald Trump, which pledges to reduce huge trade deficits by accelerating domestic production and job creation.

The Toyota-Mazda capital tie-up is expected to push forward further the consolidation of automakers into four major groups: Toyota, Germany’s Volkswagen, General Motors Co. of the United States, and the alliance of France’s Renault SA and Nissan Motor Co.

After China tightened environmental regulations, Britain and France decided to ban sales of diesel and gasoline-powered vehicles by 2040. Following Volkswagen’s diesel emission scandal, major automakers around the world have announced that they will shift their main production from those vehicles to electric vehicles.

Toyota, which is strong in hybrid vehicles but has been behind in entering the electric vehicle market, apparently judged it necessary to strengthen the development of electric cars in cooperation with Mazda. In the U.S. market, Toyota has been struggling to sell sedan-type cars as the sales of large vehicles are increasing because of low gasoline prices. By cooperating with Mazda, which is strong in the production of sport-utility vehicles, Toyota intends to catch up.

Meanwhile, Mazda, which has developed its original fuel-saving technology, has been behind in the field of electric vehicles. Mazda’s total sales currently stand at only 10 per cent of Toyota’s. A senior Mazda official said, “It’s impossible for us to do it all by ourselves regarding the development and production of electric vehicles, which require a huge cost.” With the sense of crisis, Mazda decided to approach Toyota.

In 2015, Toyota and Mazda reached an agreement to discuss a business alliance. This time, the two companies will deepen their partnership and form a capital tie-up, and will address drastic changes in the car industry through quick decision-making.

Economy, Trade and Industry Minister Hiroshige Seko said at a press conference on Friday: “The car industry is facing a major tuning point. I want them [automakers] to think about strengthening partnerships.”

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