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Toyota and Tesla have announced plans to collaborate on the development of electric vehicles, parts and production systems.

As part of this arrangement, Toyota Motor Corporation has bought $50 million - or £35 million - of stock in Tesla Motors. In return, Tesla gets Toyota's defunct factory in California. This factory is capable of producing 500,000 vehicles a year and will be used to build the Model S saloon.

Toyota company boss Akio Toyoda said: "By working together with a venture business such as Tesla, Toyota would like to learn from the challenging spirit, quick decision-making and flexibility that Tesla has."

Tesla CEO and cofounder Elon Musk said: "Toyota is a company founded on innovation, quality, and commitment to sustainable mobility. It is an honour and a powerful endorsement of our technology that Toyota would choose to invest in and partner with Tesla.

"We look forward to learning and benefiting from Toyota's legendary engineering, manufacturing, and production expertise."

Toyota introduced its first-generation Prius in 1997, and has since produced approximately 2.5 million hybrid vehicles. The company started to lease the plug-in version of its Prius hybrid late last year and now plans to introduce electric vehicles into the market by 2012.

Tesla has delivered more than 1000 zero-emission Roadsters and is currently the only car maker in America to mass-produce and sell 'highway-capable' EVs. Tesla will launch its five-seater Model S saloon within three years and its goal is to produce increasingly affordable electric cars to mainstream buyers.

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