The leading luxury carmakers may jointly develop compact models, electric engines and self-driving car technology. Joint production in the US is also an option, sources said.

(Source: Reuters) BMW on the outside, BMW-Benz on the inside.

Archrivals Daimler and BMW are considering joining forces on a wide range of ventures in the latest sign of the revolutionary changes transforming the industry, people familiar with the two companies said.

Daimler, the maker of Mercedes-Benz vehicles, wants to link up with its biggest competitor in the luxury car segment to set the industry standard for self-driving vehicles and block hegemony of new rivals like Uber and Google unit Waymo. The two carmakers declined to comment about the link up, which was first reported by Bloomberg.

The world’s biggest makers of luxury cars also want to jointly develop electric engines and batteries, and cooperate on compact cars in a partnership with shared components and technology. Joint development in the US is also part of the discussion.

The companies are under enormous pressure. Both iconic makers issued profit warnings for the first time after seven years of fat profits. Even as margins are being squeezed, investments in new technologies are growing rapidly. Volkswagen can spread this investment over 12 brands and 10 million units, Daimler and BMW, on the other hand, produce only 2.5 million units each annually. And even VW is considering sharing technology with Ford.

Cooperating in the US

It is a bitter pill for the two rivals to swallow. Their first attempt at developing a joint internal combustion engine was buried years ago. More recently, in the emissions-cheating scandal that engulfed the German manufacturers, Daimler and VW confessed potentially illegal agreements on technology standards while BMW kept quiet and now risks a big fine. Officials at BMW feel their competitors ran them down with authorities.

But there’s no time left for sulking. Daimler and BMW already have a joint venture in procurement of parts not related to their specific brands. In future-oriented projects like the joint operation with Berlin-based Here mapping technology or building up quick-charge networks on German highways, the two companies already work side by side. This week they also received approval from US authorities to merge their car-sharing services DriveNow and Car2Go into a new mobility firm.

That’s not enough going forward, though. The current talks, according to industry sources, involve a much bigger roll of the dice. One project is developing a common platform for the compact models like the BMW 1 and 2 series and the Mercedes A-Class. That way they get closer to the volume VW has with its dozen or so models made with the Golf platform. The challenge here would synchronizing their development cycles.

Cooperation might be easier with future projects. For instance, Daimler could buy its e-car batteries from the Chinese firm CATL, which is building a huge factory in Erfurt primarily to supply BMW, lowering costs for both carmakers. The two German companies could also work together on their own battery technology and electric engines.

Joint development in the US could even help both carmakers meet the higher local component requirements implemented in the new trade accord in North America. Previous talks on such cooperations foundered on opposition from labor representatives on the German company boards, who fret over possible jobs losses at home.

Self-driving secrets

Teaming up to develop autonomous driving technology may be one of the most important projects. Sources tell Handelsblatt that the two companies are talking about disclosing their existing patents to one another. The goal would be to build cars with the same technology to quickly establish an industry standard in Europe and the US. Familiar sensors and software in so many vehicles would encourage authorities to certify their cars.

BMW has already been working with chipmaker Intel, Israeli sensor maker Mobileye (now part of Intel) and component maker Delphi to set an industry standard for autonomous cars, hoping to bring a model to market by 2021. Self-driving vehicles encourage use of the same platforms and equipment. This was the logic behind the purchase of Here by the two luxury carmakers and VW. Here’s interactive maps collect data from cars using those same sensors and cameras.

The carmakers' competitor Uber has been cooperating with Volvo, part of Chinese carmaker Geely, while Google’s offspring Waymo has several partners, including Jaguar and Fiat-Chrysler. Uber, Waymo and possibly Chinese companies want to provide self-driving technology to mass producers of cars, which would instantly give them a large market share.

BMW and Daimler realize that scale is important, and joining forces to fund the costly technologies can help them in the battle against the tech and cash-heavy rivals.

Markus Fasse is Munich correspondent for Handelsblatt. Darrell Delamaide adapted this article into English for Handelsblatt Today. To contact the author: [email protected]