On Thursday, Toyota announced a partnership with Tesla motors. Toyota will be investing US $50 million into Tesla, as well as providing engineering and production systems for the development of electric vehicles.
The announcement sends a strong signal that the global automaker has a vested, long-term commitment to driving the industry.
Good leaders take the time to reflect on their mistakes and respond with a strategy that not only protects their position, but also carves out new spaces. If anything, Toyota’s slow public response to addressing highly visible product flaws has served as a catalyst to take real, demonstrative action.
With this agreement, both companies win. Tesla gets the necessary capital, structure and visibility while Toyota has an opportunity to inject a fresh jolt of entrepreneurial spirit. For Toyota, in particular, this arrangement should have a continued calming effect with its most vocal critics even if some may see this as a quick fix to a lagging public relations problem.
And yet, the partnership is not without its own set of challenges—the first being cultural. Toyota operates with a geographically dispersed, top-down, command and control culture while the Silicon-Valley based, Tesla, has a more flexible, innovative approach. Both companies will need to find middle ground to make the alliance work.
Additionally, the category shift is still in its early stages. Every major carmaker is focused on coming up with a cleaner technology solution and many are even beginning to bring their early ideas to market. The stakes are high and Toyota will need to work hard to differentiate its brand.
What is important to remember here is Toyota’s track record. The brand has held up to intense media and government scrutiny, and as its success with the Prius attests, when Toyota is focused on something, it has a history of making it work. The Toyota brand and its products may be slightly tarnished, but if the organization executes this correctly, Toyota will have effectively turned a negative into a positive—and that is what leaders and strong global brands do.