Toyota Motor Corp. and Mazda Motor Corp. are planning to build an assembly plant in the U.S. for $1.6 billion, the two companies announced on Friday, as part of their alliance that also sees the two automakers from Japan jointly developing technologies for electric vehicles.
The two will hold small stakes in one another as part of this link. Toyota, the second largest maker of autos in the world by vehicle sales in 2016, will hold a share of 5% in Mazda, extending the dominance it has in the auto sector of Japan. Mazda will have a share of 0.25% in Toyota its much larger rival.
The plant, which is somewhat of a surprise considering the overcapacity that exists in the auto market in the U.S., will help President Donald Trump, who during his campaign promised to increase the amount of manufacturing and employment for autoworkers in the U.S.
The plant when completed will produce at full capacity 300,000 vehicles per year with its production divided amongst the two Japanese automakers. It will employ approximately 4,000 and start operations in 2021.
The cooperation involving electric vehicles comes as governments around the globe are tightening emissions regulations that prompt automakers to hurry up development of vehicles that are battery powered, as the industry grapples with high costs for research and strong competition from companies in the tech sector over technology for things such as autonomous driving vehicles.
Toyota and Mazda, as part of its agreement, will work together as well to develop information technologies for in-car use and functions for automated driving.
Toyota, the largest automaker in Japan, has forged new alliances with its smaller rivals in Japan for a number of years, effectively creating a loose type of consolidation of the auto sector in the country.
It already holds a stake of 16.5% in Subaru the No. 6 largest automaker in Japan, with which the two have a development partnership as well.
Toyota is courting Suzuki Motor Corp the maker of compact vehicles for a link up related to research and development and parts supply as it seek to gain some of the expertise of its smaller rival in emerging markets in Asia.
A share of Mazda might also prevent incursions in the future by tech companies, said one industry analyst on Friday.
Mazda will gain from this deal that allows the smaller automaker a foothold in production in the U.S., as it currently ships every vehicle sold in the U.S. to that country, its largest market, from Mexico and Japan.