The German and French car companies said in a statement that the cooperation, BMW Peugeot Electrification, aims to star building hybrid components from 2015. These will be used in models built by both carmakers.
"BMW and PSA are setting a joint course with clear and ambitious goals," said Wolfgang Guellich, who heads the joint venture. He said the companies aim to become leading providers of electric powertrains.
The two car groups are investing more than 100 million euros in a jointly operated r&d center in Munich, where BMW is headquartered. Parts, which will include electric motors, generators, power units and energy management software, will be produced in Mulhouse, France.
BMW and PSA have cooperated since 2002 in several area. PSA has built engines that are used in several BMW models and the two companies are jointly developing a new generation of 4-cylinder gasoline engines.