Toyota and Mazda signed an agreement on August 4 to enter a business and capital alliance, with the aim of further strengthening the existing partnership. It’s a testament to the positive result of two years of collaborative and deliberate discussions between the two companies, both parties say.

The Japanese carmakers have agreed to establish a joint venture that produces vehicles in the US, jointly develop technologies for electric vehicles, jointly develop connected-car technology, collaborate on advanced safety technologies and expand complementary products.

In addition, Toyota and its smaller rival have agreed to a capital alliance arrangement that “preserves independence and equality for both companies.” Toyota will acquire shares that will be newly issued by Mazda (amounting to 5.05%), which will buy shares of treasury stock disposed by Toyota in the equivalent amount in value (0.25%). The value of the shares mutually acquired by both companies will be equal.

“The greatest fruit of our partnership with Mazda is that we have found a new partner who truly loves cars. It has also sparked Toyota’s competitive spirit, increasing our sense of not wanting to be bested by Mazda. This is a partnership in which those who are passionate about cars will work together to make ever-better cars. It is also the realisation of our desire to never let cars become commodities,” Toyota president Akio Toyoda said.

Mazda president and CEO Masamichi Kogai said: “Nothing would please me more than if, through this alliance, we can help to energize the auto industry and create more car fans by bringing together two competitive spirits to spur each other on, leading to innovations and fostering talent and leaders.”

Auto industry challenges that the partnership faces include stricter environmental and safety regulations, the entrance non-traditional competitors, as well as the diversification of mobility-related businesses. Individual strengths to further improve technologies and business foundations will be leveraged upon in a “favourable relationship that respects the autonomy and equality of each party.”

Toyota and Mazda will establish a joint venture that produces vehicles in the US to the tune of around 300,000 units per year. The goal is for the US$1.6 billion plant to start operations in 2021. Toyota will make the Corolla sedan there while Mazda will produce SUVs, all for the large market that is North America.

Mazda does not currently have a US production site, so this is a boost for the Hiroshima-based carmaker. Toyota’s original plan was to make the Corolla in Mexico, but the under construction factory in Guanajuato will now produce the Tacoma pick-up truck once it’s ready. Toyota says there will be no substantial impact on its investment and employment plan in the US’ southern neighbour.

Toyota was one of the automakers targeted by US president Donald Trump, who threatened to impose a “big border tax” on the company if it shipped Mexican-made cars into the US.

Unlike Nissan, Toyota and Mazda weren’t among those who bet big on electric vehicles, instead focusing on hybrids and the improvement of the internal combustion engine, respectively. But the trend is moving towards electric vehicles, and both now have to play catch-up. This partnership aims to explore joint development of technologies for the basic structure of competitive EVs, allowing the companies to respond quickly to regulations and market trends in each country.

It’s the same for connected technology, where Toyota will cooperate with Mazda in vehicle-to-vehicle (V2V) and vehicle-to-infrastructure (V2I) technologies with the ultimate goal of creating a mobile society free of accidents.

There will be vehicle sharing as well. Mazda already supplies the Mazda 2 Sedan to Toyota for North America, and Toyota will make available a compact commercial van to Mazda in Japan. Beyond this, the companies will explore the possibilities of other complementary products on a global level.