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Jack Lifton
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Jack Lifton is an Independent consultant and commentator, focusing on the market fundamentals and future end use trends of the rare metals. He specializes in the sourcing of nonferrous strategic metals and on due diligence studies of businesses in that space. His work includes exploration,... More
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Technology Metals Research
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The Jack Lifton Report
  • Why Toyota and Daimler Invested in Tesla 1 comment
    Feb 24, 2011 9:28 PM | about stocks: TM, DDAIF, TSLA, CVX, ENER

    A classic example of looking at the trees and not noticing the forest is demonstrated by the much hyped “investments” by Toyota and Daimer (Mercedes) in Tesla. The pundits, day-traders, and bulletin-board crowd were simply ecstatic that Toyota and then Mercedes  had recognized that the future of the two trillion dollar OEM automotive industry was to be altered by the actions of a silicon-valley entrepreneur who had openly said that making his money took genius whereas Detroit was simply a land of overpaid lesser qualified managers whose work anyone good do better.

    At the time of the so-called Toyota investment in Tesla’s “technology” I, of course, being a lowly Detroiter-though not, thank goodness, a bean counter-read the details, and in about a Detroit-minute decided that since Toyota had just become stuck with the total ownership of the Fremont, California "NUMMI," New United Motors Manufacturing Inc, assembly operation it had shared with the then going bankrupt General Motors Corporation it must be hiving off the dead weight of that plant to Tesla, and in order to sweeten the deal it, Toyota, must be allowing Tesla to announce a 60 million dollar price discount as an “investment in Tesla.” I felt sorry for the ego-driven Tesla genius who had just actually paid someone to take a dead-weight off of their hands. I admired the Toyota managers who had just made lemonade out of a very big lemon.

    As for Mercedes, besides this deal with Tesla, it had also once contracted with Cobasys (Chevron Ovonic Battery Systems) to have nickel metal hydride (rare earth based) batteries made for its planned hybrids during the mid-2000s. Cobasys failed to deliver batteries according to specifications and  terms and Mercedes sued to recover its pre-payment and loss of business potential thus giving a boost to that company’s, Cobasys',demise. Yet I do not remember anyone hyping when the agreement was signed this last attempt to manufacture NiMH (nickel metal [rare earth metal] hydride) batteries in America as Mercedes seeing into the future .

    When Tesla fails as a mass market car maker will this make Toyota’s and Mercedes judgement look bad? No, it will not, because:

    1.) Toyota’s investment in Tesla allowed it to reduce its liability to the State of California by passing that on to Tesla, and to get some Green P.R. on the cheap, and

     2.)  Mercedes investment is just and will soon be was just an engineering hedge. This means that Mercedes paid to take a look at a technology and pre-negotiate a license in case that technology worked out and became a fit to Mercedes marketing plans.

    Toyota doesn’t need anyone’s help to develop power trains for electrified cars, and it makes its own traction batteries for its electrified vehicles.

    Daimler Benz also does not need the help of engineers for whom a glorified laptop battery is a fuel source for a vehicle. Like Toyota it, Daimler, wanted to have a look at the total car technology. Now it has.

    What intrigues me is the attitude of the financial and so-called technology press. They hype the initial agreements without bothering to understand that the driver for those agreements is simply to investigate a technology.

    The real skill of the Tesla management is its ability to make successful OEM automotive producers pay fairly large sums just to have a look at a technology.This, I admit, is the real function of hype for any technology.

    The real failure is on the part of the financial press, which doesn’t seem to understand how businesses of any kind operate and to misunderstand completely the detailed operations of engineering based buisnesses such as automobile manufacturing. Certainly they never report the failure of a technology to live up to its hype if they first did the hyping themselves.

    Robert “Bob” Stempel, former Chairman of General Motors, was interviewed a few days ago by Autoblog.com about the future of the lithium-ion battery in the OEM automotive space. He is very positive about the long term ultimate success of vehicle electrification using li-ion batteries as the power source, but as to Tesla he pointed out that my thoughts back then were right. 

    The Autoblog.com interveiwer said:

    "Yet Mercedes is using Tesla batteries in its test fleet, and Toyota has partnered with Tesla."

    GM's former CEO answered: 

    "The Toyota/Tesla partnership arose out of a series of other issues. It was really a convenient marriage for Toyota, because they needed to do something with the Fremont plant. When you unravel that story, there's a lot more to it than just batteries. And Mercedes has sold off part of their investment and is backing away from that. That multi-cell concept is very, very difficult, so I think you'll see Mercedes moving toward bigger cells and fewer of them. They wanted to get their feet wet on an experimental basis so were trying a little of everything."

    The above "real' explanation of the interest of Toyota and Daimler in Tesla seems too simple for most, but I think Mr Stempel is entirely correct in his analysis of the business and engineering drivers for that interest. 

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Stocks: TM, DDAIF, TSLA, CVX, ENER
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