Mercedes and BMW rumoured to form an alliance for plug-in hybrid petrol engines

Mercedes is reportedly negotiating with BMW to purchase gasoline engines. The alliance for this potential cooperation between BMW and Mercedes is said to have arisen from an initiative by Mercedes CEO Ola Kallenius about nine months ago. A decision is expected within the next two months. If the boards of directors of both brands reach an agreement, BMW could supply four-cylinder gasoline engines to Mercedes starting in 2027. The cooperation could then expand.

Mercedes has long been committed to an electric strategy, while BMW has continued to work towards a future with combustion engines as well. It has the production capacity needed to assemble combustion engines in Steyr, Austria. Mercedes, moreover, does not intend to rely solely on the Geely engines initially used in the new CLA, given that these are sourced from China, which is politically problematic in markets like the US.

The agreement between the two brands would be part of a strategic move to reduce development costs. For Mercedes, it would mean having Euro 7-compliant powertrains, which could be used for plug-in hybrids. For BMW, if the cooperation were expanded, it could also include joint engine production in the United States to avoid customs duties. Furthermore, a joint venture for such close production would not face potential antitrust issues.

The cooperation would also ensure full utilization of the BMW plant in Steyer, Austria, generating revenues in the hundreds of millions for the Munich-based manufacturer. Overall, if the agreement were to be signed, it would be a historic first for two rival German premium car manufacturers to share engines, and potentially transmissions, but without further investment in the development of four-cylinder powertrains.