The car—expected to be based on Mazda’s Mazda2 subcompact—will be sold in North America under the Toyota brand, with some 50,000 units a year to be sold via Toyota dealerships.
Toyota says it will cover the costs of production equipment and development costs related to the Toyota vehicle and a portion of costs related to the plant’s production-capacity increase.
Mazda’s plant in Mexico is scheduled to start production by March 2014, where it will make the Mazda2 and Mazda3 at an annual capacity of 140,000 units. The plant will employ 3,000 people.
Mazda has been struggling since its ties with U.S. automaker Ford Motor Co. weakened. Speculation has been rife the Hiroshima-based maker will need a new partner to ride out intense competition in the industry.
Toyota has seen its profitability recover recently. Last year, the disaster in northeastern Japan slammed production.