SAN FRANCISCO/NAGOYA Japan - Electric carmaker Tesla Motors Inc said on Friday it signed a memorandum of understanding with Japanese automaker Toyota Motor Corp to deliver two electric vehicles to the world's largest automaker by the end of month.

Since our announcement in May, Toyota and Tesla engineering teams have made a lot of progress in a short amount of time and it is exciting to start seeing some initial results, Tesla Chief Technology Officer JB Straubel said in a statement.

The prototypes will combine Toyota vehicles with Tesla electric powertrains.

Tesla had announced the partnership to develop electric vehicles with Toyota in May, but revealed in a regulatory filing that it had no formal deal in place with the Japanese automaker.

The MoU was signed on Thursday, a Tesla spokesman said, but declined to reveal which Toyota vehicles the company was working on.

Earlier on Friday, Toyota President Akio Toyoda told reporters in Japan that Toyota was interested in experimenting with Tesla's approach to using lithium-ion battery cells developed for the electronics industry as a potential alternative to developing batteries tailor-made for its own vehicles.

We'll see which better meets the needs of consumers. We're taking a multi-faceted approach, Toyoda told a group of U.S. reporters invited to tour Toyota's facilities this week.

Engineering teams from the two automakers have been meeting and working on the prototypes, Tesla said.

The comments represent the most detail the two companies have provided about the scope of a still-developing partnership with Tesla announced in May by Toyoda and Tesla Chief Executive Elon Musk.

Meanwhile, Toyota is also continuing work on a battery-powered small car the Japanese automaker plans to launch in 2012, senior executives said on Friday.

$50 MILLION INVESTMENT

Toyota invested $50 million in Tesla in a private placement after the electric vehicle maker's initial public offering in June. After zooming 40 percent on their first day of trading on June 29, Tesla shares have come back to earth and are trading around their initial public offering price of $17.

Toyota Executive Vice President Shinichi Sasaki said the world's largest automaker was open to other partnerships like its Tesla deal as it believes a number of alternatives to traditional gas engines could find a market in the next few years.

It's hard for a single company to take on environmental technology all alone because of the need for infrastructure. I think cooperation is going to be increasingly important, Sasaki said.

Toyota's tie-up with Tesla was seen as a strong endorsement of the seven-year-old start-up and credited with driving investor interest in the company best known for its $109,000 electric Roadster.

Musk has said Toyota would be a customer for Tesla, which also has a deal to supply battery packs to an electric version of the Smart mini-car for Germany's Daimler AG.

But in the absence of a contract, it had been less certain what Toyota aimed to gain from the tie-up, which was negotiated in about a month after Toyoda met Musk for the first time in Los Angeles.

Toyota will assemble a team of engineers from its U.S. research and manufacturing arm to work with Tesla on the joint prototype the companies will develop, a Toyota spokesman said.

The Roadster is powered by more than 6,800 laptop battery cells and can accelerate to 60 miles per hour from a standing stop in less than 4 seconds, faster than all but a handful of luxury sports cars.

Toyoda said he was impressed by the car and by Tesla's start-up culture, which he said he hoped would contribute to his effort to revitalize Toyota after a safety crisis earlier this year marked by the recall of about 8 million vehicles.

TESLA'S APPROACH SHOCKING

Sasaki said he considered Tesla's approach to using off-the-shelf battery components shocking, but suggested that it could open the door to lower costs for Toyota if the Tesla battery system holds up to quality standards.

At Toyota we have a lot to learn from this partnership. We've just begun working with Tesla but I believe that we've taken an important first step, Sasaki said.

A team of Toyota engineers is continuing to work on a small, urban car powered by batteries for launch in 2012, company officials said. Toyota showed off a prototype of that car based on its IQ mini-car in 2009.

Toyota dominates the market for traditional hybrids with its Prius and had been less enthusiastic about the size of the developing market for pure electric cars than rivals led by Nissan Motor Co.

Separately, Toyoda said the automaker had taken the first steps toward winning back consumer trust in the wake of its recent safety crisis.

The automaker has slowed product development, dispatched more engineers to work on safety issues and given its U.S. management team a stronger voice in making the determination on whether to recall a vehicle.

U.S. safety regulators said Toyota was too slow to react to safety problems and the recalls hurt Toyota's sales and damaged its reputation for quality.

We are listening hard to what our customers have to say and we are working hard to earn their continuing trust, Toyoda said.

(Additional reporting by Chang Ran Kim in Tokyo; Editing by Matthew Lewis)

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