BMW and Toyota have agreed to collaborate on research into next-generation lithium ion battery technology for electric and hybrid vehicles.

A memorandum of understanding signed this week commits BMW and Toyota to joint research on lithium ion batteries and to developing other areas of research co-operation.

In addition, BMW has agreed to supply Toyota Motor Europe with 1.6-litre and 2.0-litre diesel engines from 2014. The engines will enable Toyota to expand its range of diesel models in European markets.

"Toyota is the leading provider of environment-friendly series technology in the volume segment and the BMW Group is the most innovative and sustainable manufacturer of premium automobiles," said Norbert Reithofer, chairman of the Board of Management of BMW AG. "We are now joining forces to further develop environment-friendly technologies and to expand our innovation leadership in each of our segments. Supplying Toyota with our fuel efficient and dynamic diesel engines represents another important step in the planned expansion of our sales activities for engines and powertrain systems."

Akio Toyoda, the president of Toyota Motor Corporation, added: "It is a great joy and a thrill to enter into this mid-to-long-term collaborative relationship with BMW, a company with its own culture and history from its many years of car manufacturing in Europe, and a company that makes cars that are fun to drive. In the spirit of contributing to furthering the development of the auto industry and society, both companies will bring their wide-ranging knowledge – starting with that concerning environmental technologies – to the table and make ever-better cars."