Toyota Motor Corp plans to raise its stake in Subaru Corp 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, 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 car makers, 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.
The companies have long worked together on projects such as the Toyota 86 and Subaru BRZ twins. At one time, Subaru built Toyota Camrys in its Indiana plant.
Representatives for both Toyota and Subaru said the news was not something that had been announced by their companies.
"The plan appears to be to ultimately make Subaru a fully owned subsidiary, to help create a 'mega Toyota.' This is the first step towards that," said Takeshi Miyao, managing director of Carnorama, a consultancy.
"It's all about building scale."
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.
Car markers around the world have been joining forces to slash development and manufacturing costs of new technology. Ford Motor Co and Volkswagen AG have said they will spend billions of dollars to jointly develop electric and self-driving vehicles.
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 building its holding in Subaru since first acquiring a 9.5% stake in the smaller automaker, then called Fuji Heavy Industries, in 2005. With nearly 17% at the moment, Toyota is already the biggest shareholder in its smaller rival.
Toyota 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.
