On Friday, August 4th, automobile giant Toyota Motor Corp (NYSE:$TM) announced that the company will be taking up 5% of the stock of fellow competitor Mazda Motor Corp (TYO:$7261). In turn, Mazda will be taking 0.25% of Toyota’s stock. This is part of Toyota’s partnership with Mazda in their plans to construct an assembly plant worth $1.6 billion in the U.S. The two companies are also planning to work together on producing electric vehicles.

Investors were surprised at the news of the assembly plant being built in the U.S., especially since U.S. auto sales have been struggling recently. But the plant is, nonetheless, good news for the U.S. in terms of creating more jobs. The plant would employ about 4,000 workers and produce 300,000 vehicles per year. Toyota and Mazda expect the plant to begin operations by 2021. Production will be split between the two companies.

Toyota and Mazda’s partnership is an attempt by both companies to break into the electric vehicles industry. With countries growing more concerned over global emissions as well as the rising popularity of electric vehicles, automobile companies are racing against each other in electric car production. However, it’s not just automobile companies that are competing against each other any more – with the increasing use of various new technologies like self-driving in automobiles and electric vehicles, big-name tech companies like Apple (NASDAQ:$AAPL) and Google (NASDAQ:$GOOGL) are joining in on the race too.

“There will be new rivals appearing – Apple, Google – these are IT companies, we also need to compete with them, too,” Akio Toyoda, Toyota’s President, said. Toyoda was named to lead Toyota’s new electric car business last year, a signal to the company’s commitment to producing electric vehicles. “What’s different from the past is that there are no nautical charts for us to follow. It’s without precedent,” Toyoda noted of Toyota’s new ambitions. The company hopes that by 2050 all the vehicles it produces will run on zero emission. This is a big change from the same company who had stated that it preferred electric vehicles for only short-distance traveling due to limited driving range and long charging times.

Aside from electric vehicles, Toyota is also looking at hydrogen fuel-cell vehicles (FCVs). This could give the company an upper-hand in the market as most companies, like Nissan Motor Co (TYO:$7201), Volkswagen AG (ETR:$VOW3), and Tesla (NASDAQ:$TSLA), have been focused on developing and producing electric vehicles. Additionally, Toyota will also be working with Mazda on in-car information and automated driving technologies as part of the partnership.

Toyota’s Expansion Plans and Mazda’s Benefits

Toyota has been partnering with smaller and potentially competitive automobile companies for a couple of years now. Besides Mazda, Toyota also holds a 16.5% ownership of Subaru Corp. (TYO:$7270) and is currently in another partnership talk with Suzuki Motor Corp (TYO:$7269). As such, Toyota has been effectively creating a network within the Japanese auto industry.

Toyota’s partnership with Mazda is a rather smart one. An analyst noted that Toyota’s stake in Mazda could help stop potential attacks by tech companies in the future. “For a technology company which lacks the expertise in making cars, Mazda could look like a very interesting acquisition. They’re very good, they’re not too expensive,” Chris Richter, managing director at CLSA, explained. “By buying a 5 percent stake, Toyota takes Mazda off the table rather than having it sit out there like a free agent which could someday be used against them.”

Mazda has also stated that it could further expand the partnership as long as its management stays in control. Mazda’s Executive Vice President, Akira Marumoto, said, “We will study the possibility of expanding the capital alliance, but the basic premise is that autonomy is assured.” Even if the alliance isn’t expanded, Mazda will still be benefiting from the current deal as it will finally provide the company with a production plant in the U.S. The company currently only owns production plants in Japan and Mexico. As well, with only 140 billion yen in its R&D budget this year, Mazda could not have got into the electric vehicle market without the help of Toyota. Mazda stands to gain a lot from this deal.

“Mazda needs electrification technology. In the past, they’ve pooh-poohed EVs, they’ve felt they can make internal combustion engines more efficient, but the bottom line is that globally you need to have this technology,” Janet Lewis, the head of Macquarie Securities’ (ASX:$MQG) Asia transportation research, said.

The U.S. production plant is set to produce Toyota Corollas and Mazda’s new SUVs, though the companies stated the plant could produce other models – even electric vehicles – in the future.

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