TT-623 -- Toyota-Tesla Deal Goes Deep, e-biz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, July 24, 2011, Issue No. 623

+++ INDEX

- What's New -- Toyota-Tesla Deal Goes Deep
- News -- Metropolitan government to go thermal
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback -- Where is Fukushima?
- News Credits

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+++ WHAT'S NEW

On July 21st a big question that must have troubled real
estate developers in the San Francisco Bay Area for the
last year was answered: "How was it possible for Tesla
Motors to buy the shuttered 200-acre New United Motors
Manufacturing, Inc. (NUMMI, Toyota's failed j/v with GM)
plant in Fremont, complete with buildings, for just US$42m
from Toyota?" They would have been troubled because
prior to the sale, the Alameda County Assessor had the land
plus an adjoining 160 acres valued at US$159m, and plant
and equipment at US$911m -- yielding a total capital
valuation of US$1.07bn. Basically, the NUMMI plant sale has
been one huge capital loss for Toyota...

Our Take, and it's pure speculation mind you, is that the
answer came in the form of an announcement mid-this week
from Tesla that it has inked a 3-year deal to supply Toyota
with US$100m of power train components for Toyota's 2012
all-Electric Vehicle (EV) RAV4, which journalists have been
favorably road testing. In other words Tesla and Toyota are
now revealing a depth of collaboration that belies the
paltry US$50m that Toyota initially invested for 2.9% of
Tesla back in May 2010, and which puts the NUMMI land deal
into perspective: the two companies are moving much closer
together.

Actually the rapidly evolving development of the
Toyota-Tesla relationship is quite interesting, not only
because it shows that Toyota is hedging its bets on EVs,
but also because it speaks to the prowess and marketing
capabilities of Tesla's founder and board to leverage a
potential dot.com-style bomb into a highly valued IPO in
June 2010. The valuation of that IPO, which came in at
around US$2.2bn, or US$22.89 per share, created about
US$250m in much needed cash for the company.

[Continued below...]

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Contact us at terrie@metropolis.co.jp to kick things off.
------------------------------------------------------------

[...Article continues]

There have been three elements to this Toyota-Tesla deal
which that we find interesting.

Firstly there is the land deal. One wonders how Toyota will
account for the large capital loss, especially since even
the land itself sold for half the going rate and
fortuitously gave Tesla a manufacturing plant that it could
never build for itself. Perhaps one hint is to be found in
a 2009 GM announcement saying that that previous NUMMI
joint partner expected major costs related to environmental
cleanup of the site. So by selling the plant on to Tesla,
Toyota could say that it was dodging this bullet. Certainly
it's a convenient way to pass on an asset to a pal.

Secondly, there is the fact that Toyota's arrival to invest
in Tesla last year significantly changed Tesla's chances of
a successful IPO. Tesla filed in January 2010 to IPO, but
had to file two amendments over succeeding months --
presumably because investors weren't giving the company
much love, before landing the Toyota investment and
subsequently doing a very successfully IPO several
months later.

A J.D. Power & Associates Senior Manager said in 2010 that
the Tesla valuation, at about 3x the valuation ratio of
traditional car makers such as Nissan, reflected Tesla
being viewed as a battery and technology firm rather than
a car maker, but nonetheless agreed that the valuation was
probably high. He also added that the loan award from the
Department of Energy, along with the Toyota investment, were
important in making "investors see Tesla as a safe play".
So we can see how important the Toyota investment was --
and the question is: how much leverage has that bought
Toyota today?

Thirdly there is the whole issue of whether or not
Toyota got into the Tesla deal because it is trying to
atone at some level for the wrath caused over the shutting
down of the NUMMI plant in 2009 and further the way it
handled the sticking gas pedal situation in the USA last
year. We're not big on conspiracies but they can be
entertaining. Go here for an fairly long but well informed
viewpoint of an activist blogger who feels Toyota was on
the receiving end of some local US politics.

http://bit.ly/aFxTei.

Whatever the motives behind the Toyota-Tesla deal, it has
now become a very real relationship and one that will
boost the arrival of EVs to the ordinary man-in-the-street.
So far only Tesla has really economically solved the
Lithium-ion energy-density problem (although Nissan is well
on the way) thanks to the pragmatic solution of using 6,800
commercially available 18650 cells (slightly larger than
standard AA batteries) and ganging them up in huge arrays.
Our understanding is that they have quite strong patents
around this technology and that is worth a 3-5 year head
start for whomever has access to such technology -- such as
the investors and any sweetheart deals they can extract
from Tesla the patent holder.

Toyota is no fool in terms of hedging risks, and is
probably very concerned that it doesn't let Nissan with its
Leaf vehicle get too far ahead of them. If Toyota was to
have developed its own battery system, drive train, and the
other components that it is buying from Tesla, it would be
spending hundreds of millions of dollars and would still be
2-3 years behind the leaders. Furthermore, as we have
hinted above, there is probably a lot more to this deal
than meets the eye. Whether Toyota is getting a billion
dollars of value out of the EV components and the profit
they help generate we don't know, but if not, then it will
almost certainly be because they are getting equivalent
but less obvious value out of some other part of the
deal.

...The information janitors/

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+++ NEWS

- Metropolitan government to go thermal
- Takeda saved from diabetic episode
- Menopause herb fails to make the grade
- Did you know this about Edison?
- Unexpected trade surplus for April-June quarter

-> Metropolitan government to go thermal

Showing echoes of his political abilities, Tokyo
Governor Ishihara has announced that the Metropolitan
government will build and operate its own natural
gas-powered power plant, capable of producing about 1GW of
electricity [Ed: we think Nikkei number of 1MW is wrong --
JiJi says 1m x 1KW). Ishihara reckoned this would be
equivalent to one nuclear reactor and would cost around
JPY50bn to build. ***Ed: Hopefully this goes better than
his Metro-owned bank did...** (Source: TT commentary from
e.nikkei.com, Jul 23, 2011)

http://e.nikkei.com/e/fr/tnks/Nni20110723D23JF451.htm

-> Takeda saved from diabetic episode

Takeda Pharma may have been saved from a catastrophic hit
to its business after French reports that its leading
diabetes drug Actos, responsible for 30% of its total
sales, may cause bladder cancer. The company has received
permission from the US-based FDA and the European Medicines
Agency to continue selling the drug, providing it is sold
with a warning to doctors in the product explanation.
Previously the company had been threatened with a product
recall. (Source: TT commentary from e.nikkei.com, Jul 23,
2011)

http://e.nikkei.com/e/ac/tnks/Nni20110722D22JFA13.htm

-> Menopause herb fails to make the grade

A herbal preparation called keishi bukuryogan, which is
available by prescription in Japan and is popular in
treating women suffering hot flushes due to menopause, has
failed to show any attributable medical effects in trials
conducted in the USA. The trials were run by researchers at
the Abbott Northwestern Hospital in Minneapolis. The
preparation consists of a mix of cinnamon bark, peach pit
and several other herbs. (Source: TT commentary from
reuters.com, Jul 07, 2011)

http://reut.rs/nToo7P

-> Did you know this about Edison?

A short article run on the Cleveland Plain Dealer web site
points out that Thomas Edison's first successful light bulb
was powered by carbonized bamboo filaments sourced from a
village in Kyoto-fu, called Yawata. From this early connection
between Japan and the USA in the 1880's, Edison "mania" is
apparently still alive and well in Japan and Japanese make up
the largest number of visitors to Edison's boyhood home in
Milan, Ohio every year. Furthermore, for the last 26 years,
Yawata has been the sister city of Milan.** (Source: TT
commentary from cleveland.com, Jul 07, 2011)

http://blog.cleveland.com/metro/2011/07/thomas_edisons_legacy_still_bu.html

-> Unexpected trade surplus for April-June quarter

Market analysts were expecting the knock-on effects of the
March 11 disaster to last for some months, but in a
demonstration of resilience, Japan posted a surprise trade
surplus in June of JPY70.7bn. To be sure, this was 90% less
than the year earlier, but was still quite unexpected. The
expectation now is that the recovery will be slow and
hampered by power and high yen issues, but should continue.
Most of the June gain was attributed to increases in
exports to China and Europe. (Source: TT commentary from
afp news on Google, Jun 21, 2011)

http://bit.ly/oBOW0k

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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***------------------------****-------------------------***

+++ CANDIDATE ROUND UP/VACANCIES

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+++ UPCOMING EVENTS/ANNOUNCEMENTS

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This is an ideal opportunity to find out what is involved,
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-----------------------------------------------------------

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors@terrie.com.

*** More on tracking food sources...

=> Reader contribution:

A bit nit picky I guess but Fukushima IS in Tohoku, it is
north of Tochigi which is in Kanto. Not sure where you
think it is, but you kept referring to Tohoku as north of
Fukushima.

*** You're quite right -- our apologies to readers who may
have been wondering. Thanks for pointing this out.

***********************************************************
END

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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd@japaninc.com)

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