TOKYO—Toyota and BMW are working together on environmental auto technology, collaborating on research for new lithium-ion batteries for green cars.

Under the agreement, BMW AG will also supply clean diesel engines to Toyota Motor Corp. starting in 2014 in models for the European market.

BMW will also supply Toyota Motor Europe (TME) 1.6 liter and 2.0 liter diesel engines for the European market starting in 2014. The engines will be installed in certain Toyota-produced vehicles planned for sale in the European market.