GM, Hyundai to explore jointly developing cars to 'unlock scale'

GM ( GM ) and Hyundai ( HYMTF ) signed an agreement on Thursday morning to explore jointly developing cars, powertrains, and various technologies, signaling how far Korean automakers have come over the past 30 years.

Under the non-binding memorandum of understanding signed by Hyundai Motor Group executive chair Euisun Chung and GM CEO Mary Barra, the two companies will collaborate and co-develop projects, including production of passenger and commercial vehicles and powertrain technologies including gas-powered motors and clean-energy options, which would include electric and hydrogen options.

The two automaker giants said they would examine opportunities to combine resourcing for battery raw materials, steel, and other commodities.

“GM and Hyundai have complementary strengths and talented teams. Our goal is to unlock the scale and creativity of both companies to deliver even more competitive vehicles to customers faster and more efficiently,” Mary Barra said in a statement.

While GM and Hyundai did not project eventual cost savings, Barra added the partnership between the two companies has the potential to make vehicle development cheaper by driving scale and deploying capital more efficiently. GM and Hyundai are still assessing those savings with the goal of signing binding agreements.

The two companies have complementary assets that would be beneficial to either side, Sam Fiorani of automotive manufacturing research firm AFS, told Yahoo Finance.

"With the ink ... still drying on the alliance, Hyundai’s hybrid technology could be helpful to GM and Hyundai might like access to BrightDrop vans to expand into the commercial range," Fiorani said. "Hyundai is still growing, and GM is attempting to right-size its global footprint, so GM’s factory space in South Korea might be of interest to Hyundai."

The growing importance of partnerships in the auto sector

GM adding an OEM (original equipment manufacturer) partner to jointly develop vehicles and technologies isn’t new. GM currently has a partnership with Honda to develop higher-end electric vehicles (though the two have nixed the deal to develop cheaper EVs ), and the company has worked with Toyota, Subaru, and Peugeot in the past.

Hyundai only started selling cars in the US in the mid-1980s and had to fight hard with unheard-of 10-year warranties to get Americans to take a chance on the Korean brand. Hyundai's potential partnership with GM is its first big link-up with a legacy US automaker.

Hyundai is also famously fully vertically integrated , owning its own mills to make steel and building components like transmissions in-house; while those investments are substantial up front, in the end, production costs come down as scale rises.

One area where Hyundai and its vertical integration could help is with EV battery production.

"Excess capacity in battery production will exist for a number of years as factories have been built to make enough batteries for where vehicle manufacturers expect to be. They won’t be at those levels anytime soon, leaving large factories greatly underutilized," Fiorani said. "Teaming up with another manufacturer provides a way to raise the production of a plant to a more profitable level without having to flood a dealer network with EVs."

Barra has said in the past the time for collaboration is now, and it’s possible she and Hyundai’s Chung see upstart Chinese EV makers as the real threat as the industry evolves.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram .