SEOUL German premium carmaker BMW (BMWG.DE) and South Korea's Hyundai Motor (005380.KS) are discussing a possible tie-up in engine development and other areas, a source who has direct knowledge of the matter told Reuters.
"The talks are at early stages," the source said on condition of anonymity because the talks were confidential.
Another source told Reuters that the two companies had discussed a "comprehensive alliance," including jointly developing an engine and sharing development costs equally. He said he had no knowledge of whether the talks were still underway.
German industry newsletter Automobil Produktion reported on Thursday that BMW was in talks with Hyundai to help shoulder 1-2 billion euros in the cost of developing new engine families.
Hyundai Motor Group chairman Chung Mong-koo's son and heir apparent, Chung Eui-sun, had met a small group of top BMW managers in Munich, Automobil Produktion said, without citing sources.
A spokesman for Hyundai Motor denied the report, saying, "It is groundless."
Park Sang-won, an analyst at Eugene Investment & Securities, said the possible cooperation could help BMW achieve economics of scale and Hyundai gain access to BMW's advanced gasoline engines, especially those used in large-sized vehicles.
He said carmakers are burdened with costs to develop fuel-efficient, eco-friendly vehicles as environmental regulations are toughening. Hyundai, the world's fifth-biggest carmaker along with affiliate Kia Motors (000270.KS), had a 10.4 percent operating margin last year, the highest among the global top-five auto makers and only topped by premium carmaker BMW, which had 11.7 percent.
BMW had said in March it was working on a new engine architecture that would improve economies of scale for its three, four and six-cylinder petrol and diesel engines.
BMW Chief Executive Norbert Reithofer earlier dampened speculation BMW would extend its partnerships beyond Peugeot (PEUP.PA), Toyota (7203.T), Daimler (DAIGn.DE) and possibly GM (GM.N), should ongoing talks with the U.S. automaker prove fruitful.
BMW is in talks with General Motors on future technologies such as fuel cells and may extend cooperation with PSA Peugeot Citroen on gasoline engines, Reithofer said.
BMW is also teaming up with Toyota in green car technology under which the German premium car maker will supply diesel engines to Toyota from 2014 in Europe and the pair will collaborate on lithium-ion battery research for electric cars.
"Further co-operation partners are currently not foreseen," Reithofer told reporters on Thursday.
(Reporting by Hyunjoo Jin; Editing by Richard Pullin and Eric Meijer)
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