Report: Toyota to source BMW diesel engines image

Toyota is holding talks with BMW for a partnership in environmental vehicles, according to business daily Nikkei.

The two automakers are discussing a collaboration under which BMW will supply diesel engines, most likely 2-liter units for midsize cars, for Toyota’s passenger vehicles sold in Europe. The deal would boost Toyota’s sales, which fell 9 percent in 2010 on the continent. There are no further details, as the starting date and the scale of the project are yet to be decided.

For Toyota, this is the second green-technology partnership with a foreign automaker, after in August the Japanese carmaker and Ford agreed to develop hybrid trucks and SUVs together. By getting engines from BMW, Toyota hopes to improve its position on the diesel vehicles market, as the strong yen is affecting its profit margins in hybrids. The deal will also help Toyota reduce development costs by having its Japanese and Polish factories make diesel engines for fewer models.

In exchange, Toyota is expected to share its technologies for hybrid systems if requested. BMW will be able to expand its lineup of green vehicles, having signed an agreement last year with PSA Peugeot Citroen to jointly develop hybrid systems for subcompact cars.