A machining plant was established within Toyoda Automatic Loom Works in June 1937 in conjunction with the construction of the Koromo Plant and manufactured machine tools, tools, jigs, and other related items. When the Koromo Plant was completed in November 1938, operations of the 4,300 square meter plant began, and it developed and manufactured specialty machine tools for large-scale mass production.

To promote machine tool manufacturing, when designation under the Machine Tools Manufacturing Business Law was obtained, certain benefits could be enjoyed. Toyota Motor Co., Ltd. was already subject to the Automotive Manufacturing Industries Law, and the application of two laws to a single company was not permitted, so the machinery & die engineering administration department was spun off.

Approval to establish the new company pursuant to the Machine Tools Manufacturing Business Law was obtained on November 25, 1940, and construction of a plant on a 188,931 square meter site in Oaza Shigehara, Kariya-cho began immediately. Toyoda Machine Works, Ltd. was established on May 1, 1941 with capital of eight million yen (four million yen paid-in; Toyota Motor Co., Ltd. contributed three million yen). The management team consisted of Risaburo Toyoda as president, Kiichiro Toyoda as executive vice president, and Takatoshi Kan as managing director.

The October 1940 issue of Kogyo Hyoron magazine reported that seven companies including Toyoda Machine Works were licensed under the Machine Tools Manufacturing Business Law and stated that the then-recent designation "[was] attracting attention since all the machines to be produced [would] be new models in light of the nationalization policy for special machine tools".1 Special machine tools consisted of 19 different types of tools that in the past had been imported including automatic lathes, precision bench lathes, precision bench drill presses, and fine-boring machines. Of these, only a few types were produced domestically, and only by five or six manufacturers. At the end of 1940, 21 companies and 24 plants were licensed under the Machine Tools Manufacturing Business Law.

Until the Toyoda Machine Works plant was completed, the Koromo Plant machining plant was used for both the head office and the works. The Kariya machining plant was completed in June 1942, and operations began in mid July.2