Trump welcomed the announcement of the U.S. factory, calling it "a great investment in American manufacturing".
While the two auto makers have also confirmed that the deal will see them work together to develop in-car information technologies and automated driving functions.
"Toyota and Mazda have been working more closely together, so it is no surprise they will have a plant together", Autotrader.com analyst Michelle Krebs told USA Today about the deal.
Mazda said that it expects to produce cross-over models that it will newly introduce to the North American market, while Toyota said it plans to introduce the Corolla for the North American market.
President Donald Trump has criticized Toyota for production plans in Mexico. Just prior to taking office, he took to Twitter to threaten Toyota with a "big border tax" if the company built a factory in Mexico.
Toyota is likely to acquire a roughly 5 percent stake in Mazda while the latter is expected to obtain a several percent stake in the former, the sources said.
Toyota operated a final assembly plant in Fremont, California, with General Motors until the plant closed in 2010 as GM went through a structured bankruptcy.
The partnership will focus on developing new electric vehicles. "Also, amid signs that overall USA auto demand has peaked, building a plant via a joint venture will reduce the risk for both companies".
"There will be no substantial impact on Toyota's investment and employment plan there", the Japanese auto manufacturer said. The location of the United States plant has not been made public yet. At the time, the automaker was considering making cars for the USA market in Mexico. Toyota said in January it plans to invest $10 billion in the United States over the next five years to meet demand.
Toyota on the other hand is perfectly placed to enter the EV market, and has already committed to sustainable transport.
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.
Toyota has already invested $23.4 billion in its US operations, and has planned another $11.6 billion in investment over the next five years, fueled by robust profits.
Toyota, which makes the Prius hybrid, Camry sedan and Lexus luxury models, sold 2.2 million vehicles for the quarter, a year-on-year improvement of 42,000 vehicles.
According to Reuters, Mazda, who has sales are one eighth of Toyota's, only has a research budget of 140 billion yen per year - compared to Toyota's one trillion yen.
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