Why the Tesla-Toyota Partnership Short-Circuited

Four years ago, Tesla Motors Chief Executive Officer Elon Musk invited a fan to his California home and let him take his electric battery-powered Roadster sports car for a spin. His guest: Akio Toyoda, president of the world’s biggest automaker. The two hit it off, and within weeks, Toyota Motor agreed to buy a $50 million stake in Tesla and sell its shuttered auto factory in California to its new partner for the bargain price of $42 million. They also agreed to jointly develop a new electric version of Toyota’s RAV4 sport-utility vehicle and considered extending the collaboration to an electric Lexus RX SUV, a person familiar with the matter, who was not authorized to speak about the plans, said at the time.

Today the ties are unraveling, with production of the co-developed RAV4 electric vehicle scheduled to cease by yearend. Fewer than 2,000 have been sold. Once lauded by Musk as a springboard for a deeper partnership, the SUV stood little chance of becoming a hit after Toyota slapped it with a sticker price of almost $50,000—double the gasoline version’s, and higher than Musk said he would have liked—and limited its availability to California, which requires that automakers sell a small number of zero-emission vehicles annually.