Toyota already boasts a number of US-based factories, with a particularly strong presence in the southeast; Toyota has operations in Texas, Mississippi, Indiana, Alabama and West Virginia, while Kentucky is home to the firm's largest manufacturing facility in the world.
The Japanese giant and its peer are taking small stakes in each other, and will build a $1.6 bln US plant together. With the investment, both automakers can hope to prove their good American corporate citizenship and appease the Trump administration's concerns about jobs moving overseas.
The announcement could hand a victory to President Donald Trump, who took aim at Toyota earlier this year for its plans to build a $1 billion assembly plant in Mexico, rather than in the U.S.
The deal marks a symbolically significant shift for Toyota after the company faced withering criticism from President Trump for its plans to locate Corolla production at a new $1 billion factory under construction in the state of Guanajuato in Central Mexico. Instead, it will manufacture Tacoma pickups at the Mexico plant which is now under construction.
The two manufacturers plan to jointly develop electric vehicles (EVs) and are also considering constructing a new factory in the United States together. Toyota is to take a 5% stake in Mazda, while Mazda will also invest in Toyota.
Both Toyota and Mazda signed an agreement in May 2015 which stated that the pair would explore various areas of collaboration. With the sense of crisis, Mazda made a decision to approach Toyota.
All Corollas now sold in the USA are made in Ontario, Canada or Mississippi.
The accord also could pave the way for further industry consolidation as automakers grapple with the steep costs of meeting global fuel economy standards and investing in self-driving cars.
Mazda president and COE Masamichi Kogai said that he hopes, through the deal, to "help to energize the auto industry and create more vehicle fans by bringing together two competitive spirits". Mazda says it will produce CUVs for the North American market at the new plant, and Toyota will use it to build Corollas. Japanese rival Nissan Motor Co.is allied with Renault SA of France and Mitsubishi Motors Corp., and is the global leader in electric vehicles.