It seemed like it would be a beautiful marriage. In 2011, auto giant Toyota (TM) and tiny upstart Tesla (TSLA) signed a $100 million arrangement for the latter to develop and supply battery packs and motors for a plug-in electric version of the Japanese company's RAV4 sports utility vehicle.

The deal combined Tesla's innovation in electric vehicles with Toyota's global presence and massive customer base. But barely three years later, Toyota said it will allow the agreement to expire.


The agreement came about shortly after Toyota ponied up $50 million for a small stake in Tesla in 2010. It turns out that there wasn't that much to develop. Toyota's alternative-car sales are dominated by the consistently popular Prius series of hybrids. The market heavily favors such models. According to the Electric Drive Transportation Association, in April of this year, nearly 39,500 standard hybrids were sold in the U.S., far outpacing the 4,187 EVs powered solely by batteries, like Toyota's RAV4 EV.

Even within the limited pure battery space, not many RAV4 EVs roll out of Toyota dealerships. According to segment tracker Electric Cars Report, only 69 were sold in April. Meanwhile, Nissan (NSANY) sold nearly 2,100 LEAFs; Ford (F) sold 116 Focus Electrics; and 97 Chevrolet Sparks from General Motors (GM) left the lot.

Tesla continues to stand atop the EV market. The company is reluctant to break out monthly sales, but in its fourth quarter of 2013 it delivered 6,892 Model S sedans.

Selling Cells

Those RAV4 EV sales will soon dwindle down to zero. Once the Tesla/Toyota agreement, which covers the production of 2,600 vehicles, is fulfilled, Toyota will cease making that version. The move reflects Toyota's overall philosophy on green vehicles: The company believes plug-in EVs are useful only as short-range commuter cars and that hydrogen fuel cells are the future of long-range eco cars.

And their range is long. According to the Department of Energy, a fuel cell vehicle can run 300 to 400 miles between fill-ups. That compares favorably to the estimated 265 miles the EPA has estimated for a single charge on Tesla's Model S, and the 84 miles Nissan says its LEAF can travel.

Advancements have reduced the high price of fuel cell technology. The National Academy of Sciences estimates the average cost for a fuel system at $39 per kilowatt hour. Contrast that with the academy's estimate for the lithium ion batteries used in EVs between now and 2030 -- $200 to $250 per kilowatt hour.

Of course, we still have a long way to go before hydrogen fuel cell technology is a viable mass market option. There are only 180 or so hydrogen refueling stations in the world. That number will need to increase by a couple of orders of magnitude for the automaker to succeed with its first fuel-cell mass market vehicle, which it hopes to start selling in 2015.

Better Off Apart?

The end of their marriage won't traumatize either Toyota or Tesla. For the Japanese firm, $100 million is barely a drop in the bucket of its sales. Plus, that initial $50 million investment Toyota made in its partner's stock in 2010 is now worth a great deal more -- the shares have skyrocketed from about $30 apiece at that time to around $210 nowadays.

Meanwhile, Tesla drew some revenue from the arrangement (around $15 million in its most recently reported quarter), and any income helps for the consistently loss-making company. More critically, it has gained valuable SUV experience, which it is no doubt using in the design and construction of its first such offering, the Model X, anticipated to hit the market in fall 2015.

A separation of two partners that could be so effective together is rarely good news. But if the ambitious plans of this pair come even close to fruition, this split might be a real boon for both.

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors and Tesla, and it owns shares of Ford and Tesla Motors. Try any of our newsletter services free for 30 days. ​

Increase your money and finance knowledge from home

Investment Strategies

What's your investing game plan?

View Course »

Asset Allocation

Learn the most important step in structuring an investment portfolio.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:
Magnus Thunderson

Totally understandable as Toyota as while Toyota has the best progress on hybrid tech they do not understand pluggable and there horrible sale of the Prius plug-in in is both to the very limited millage on pure electric and both the Prius plug-in was hampered in the sales area which was one of 49 states Also the high cost of them as the base leaf is almost half the price of the rav4ev

June 15 2014 at 10:35 PM Report abuse rate up rate down Reply

19,879 miles on my 2012 Nissan Leaf with no problems or oil changes needed.

June 04 2014 at 11:50 PM Report abuse rate up rate down Reply

Beware of buying a Toyota. I have had a bad experience with a Toyota that we bought. It's a service issue on a 3 year vehicle that I feel should have been covered. They did cover 75% which to me shows they know there was a defect in my vehicle. I know our family will never buy a Toyota again. Totally disgusted.

June 04 2014 at 8:07 PM Report abuse rate up rate down Reply
Bobby Jones

The only thing Tesla supplied to Toyota was the battery packs and I believe the electric motor.
Tesla built neither the batteries nor the motors, so Toyota could hardly have stolen anything, nor are they using anything Tesla provided them in their electric assist Prius. Toyota practically gave Tesla their Califoria factory, without which Tesla would not exist. Whhen thenew Japanese cotton batteries come out later this year , Tesla's profit margins will collapse and the competition will probably drive the company out of business. Most of the technology they created for their battery pack - the cooling system, etc, gets tossed out the window, along with all the money spent developing it. Biggest hit of all will be the loss of all their state and Federal subsidies , at which point we will see for the first time what Tesla's cars actually cost. As a company, Tesla depends upon govt welfare to exist. The taxpayers have been providing most of Tesla's profits to this point. Tesla Motors is one phoney

June 04 2014 at 6:12 PM Report abuse rate up rate down Reply

Pure electric cars are impractical PERIOD, once the batteries wind down you are stuck for whatever the recharging time is, they have in all reality a very limited range application before you again stuck with the recharging time (assuming you can find a level 2 charger in Horsejaw, Nevada), and if the charge is low at the end of a workday and you need to make an emergency trip you are going to be either be severely stifled in your range or your simply not going to get to the hospital before Grandma kicks the bucket. Cars like the Volt and the Prius both use a gas engine to provide that extended range that anyone with any sense of reality knows is necessary for any auto to be truly versatile. Fiskar, like the Volt, had the best arraignment IMO, electric motors, fueled generator backup, with plug in capability.

June 04 2014 at 3:18 PM Report abuse -1 rate up rate down Reply
1 reply to klunkerboy's comment
Magnus Thunderson

Pure electric cars are impractical PERIOD.?
what world do you live in as the average American drives 36 miles a day
and the leaf get 87 currently and should get better with the new battery tech out soon.
Also the comparative cost of fuel is around a dollar a gallon.
also most American one two or more cars so no problem getting grandma to the hospital
so you only right with single car owners family's very rural area but that only a small margin of Americans

June 15 2014 at 11:16 PM Report abuse rate up rate down Reply

As long as green energy, government healthcare and anything else in the world needs to be subsidized it's wrong headed. If you need to feel good about yourself then pay what it costs to develop the systems to the point where they are viable in a free market place to stand on their own. Everything else contributes to destroying the Middle Class.

June 04 2014 at 12:07 PM Report abuse rate up rate down Reply
1 reply to whstokey's comment

Can you name an industry that is not indirectly or directly subsidized? I can't think of one.

June 04 2014 at 11:48 PM Report abuse rate up rate down Reply