Toyota Motor Corp. and Germany's BMW are holding talks over forming a partnership to develop environmentally friendly vehicles, sources said Saturday.
Under the proposed arrangement, BMW would provide diesel engines for Toyota's cars, while Toyota would share its hybrid vehicle technology with the German carmaker, the sources said.
The two firms hope to slash research and development costs for core technologies as they believe their respective strengths and knowhow complement each other.
It would be Toyota's second tieup with a major foreign automaker over hybrid vehicle technology, following a deal reached with Ford Motor Co. in August.
In Europe, cars powered by diesel engines are popular in the "green" vehicle market, as the engines are seen as an effective way to cut carbon dioxide emissions and get good mileage.
Toyota hopes that producing vehicles with diesel engines will help boost its sales in Europe, where it lags behind its rivals in terms of market share. The carmaker posted operating losses in the European market in the half year that ended in September.
BMW, meanwhile, sees the deal as an opportunity to add more hybrid models to its lineup, making it more competitive in the market for environmental vehicles.
Toyota identified BMW as a potential partner because its diesel engines are more energy-efficient than those of other European automakers, and has already started checking whether BMW's diesel engines can be used in Toyota cars, the sources said.