UPDATE 1-BMW and Toyota extend technology ties -sources

Wed Jun 27, 2012 10:20pm IST

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MUNICH/HAMBURG, June 27 (Reuters) - BMW and Toyota plan to expand a technological partnership, two sources close to the companies told Reuters, a deal that could prompt a shift in auto industry allegiances.

The agreement will be extended to include hybrid powertrains and lightweight design, the sources said on Wednesday.

However, BMW has not agreed a deal to tap General Motors' advanced hydrogen fuel cell technology, a spokesman for the German luxury carmaker said.

BMW has primarily preferred France's PSA Peugeot Citroen as a partner when it comes to reducing development and production costs.

But the cash-strapped French have recently sought savings through an alliance with GM. By aligning more with Toyota, BMW would have a partner that offers greater scale than Peugeot and a financially healthy one at that.

BMW will host a news conference at 1030 GMT on Friday to mark a visit from Toyota scion and chief executive Akio Toyoda to the German carmaker's Munich headquarters.

The companies declined to comment on the conference's subject matter, but the sources said Toyoda and BMW CEO Norbert Reithofer would explain their new ideas. The sources added, however, no contracts have been drafted for them to sign.

Eager to bulk up its diesel engine line-up in a sagging European market, Toyota agreed to collaborate with BMW on lithium-ion battery research in exchange for a steady supply of BMW-made diesel engines starting in 2014.

This time BMW looks to be the partner in need. Now that Peugeot is devoting resources to cementing an alliance with GM, the joint venture with the French firm on hybrid parts looks shaky.

Additionally, BMW, whose hydrogen concept of burning the gas in an internal combustion engine never took off, has failed to reach an agreement to access GM's technology in this area.

"We are still in talks with GM, but no longer about this issue," a spokesman said on Wednesday, confirming a report in Germany's Handelsblatt.

A successful partnership with the Detroit-based automaker could have helped build trust with the new large shareholder of PSA.

BMW needs to reduce the carbon emissions of its new car fleet by roughly a third, to 101 grams per kilometre, by 2020, which Reithofer argues can only be achieved if it ramps up the number of hybrid and electric cars in its range.

"I would bet that there will soon be BMW cars equipped with Toyota's hybrid powertrains," one of the sources said.

The Japanese carmaker could then gain access to the carbon fibre joint venture with SGL, which produces cutting-edge lightweight materials that BMW aims to use on an industrial scale to mass produce its Megacity electric car, dubbed the i3.

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