Toyota Motor Corp has decided to outsource production of low-pollution diesel engines to Isuzu Motors Ltd, the Nikkei reported, without citing sources.
Isuzu will invest about 30 bln yen to build a diesel engine plant in Hokkaido that will exclusively supply Toyota (nyse: TM - news - people ), which plans to use the engines in passenger cars sold in Europe, the business daily said.
The new facility is expected to produce 200,000 units a year from 2012 onwards.
By partnering with Isuzu, which has advanced diesel engine technology, Japan's top automaker aims to challenge Honda Motor Co (nyse: HMC - news - people ), which plans to introduce passenger vehicles equipped with clean diesel engines in Japan and the US in 2009, the newspaper said.
Toyota formed a capital tie-up with Isuzu last November, taking a 5.9 pct stake in the truckmaker. The two firms are jointly developing a 1.6-liter diesel engine that features fuel injection and catalyst technologies.