Toyota Motor plans to raise its stake in Subaru to more than 20% from around 17% now, a deal that would also see the smaller firm invest in Japan's top automaker, two people with direct knowledge of the matter said on Friday.
The deal is due to be approved at a Toyota board meeting on Friday, the people said, declining to be identified because the information has not been made public.
The investment would come a month after Toyota and another smaller Japanese automaker, Suzuki Motor, said they would take small equity stakes in each other. Such tie-ups highlight how automakers are scrambling to chase scale, manage costs and boost development.
Traditional carmakers, especially smaller ones like Subaru and Suzuki, are struggling to meet the fast pace of change in an industry being transformed by the rise of electric vehicles, ride-hailing and autonomous driving.
Toyota's investment is likely to cost more than 70 billion yen ($650 million) based on Subaru's stock market value, said the Nikkei business daily, which first reported the news.
Subaru is likely to reciprocate with a stake in Toyota that would roughly equal the value of Toyota's additional investment,
one of the people told Reuters.
Representatives for both Toyota and Subaru said the news was not something that had been announced by their companies.
Subaru is particularly strong in sport-utility vehicles (SUV) and all-wheel-drive technology. The two automakers in June said they planned to jointly develop an electric sport-utility vehicle on a platform produced together, to split costs.
Carmakers around the world have been joining forces to slash development and manufacturing costs of new technology.
Toyota seems to be particularly keen to build scale now by investing in smaller, domestic automakers, rather than forging
cross-border tie-ups like some of its rivals.
It has been looking to expand scale in next-generation technology and said this year it would offer free access to patents for electric vehicle motors and power control units.
Shares of Toyota were down 0.9% while shares of Subaru fell 1.5% on Friday morning.