Honda and Hitachi have agreed to a deal in principle to develop, manufacture and sell electric car motors.

The companies signed a Memorandum of Understanding for the Japan-based venture and are set to finalise a definitive deal next month pledging to invest a combined total of around Rs 260 crore.

Honda will continue to use its own motors, which it currently manufactures in Japan, as well as motors from this new venture. Hitachi already provides parts for Honda and counts Renault, Nissan, Toyota, VW and Ford among its clients. Hitachi Automotive Systems has been selling motors for electric vehicles since 1999. Once the deal is formally agreed, the companies will set up manufacturing and sales functions in the US and China.

A name is still to be decided for this new company but a planned date of establishment has been slated for July 2017. Five billion yen (around Rs 260 crore) is being invested in the venture and the investment split is 51 percent for Hitachi Automotive Systems, and 49 percent for Honda.

Honda now does not have a fully electric car in its line-up, but the hydrogen-powered FCV Clarity could still reach the UK. It has also pledged to release a hybrid model in 2018 along with more plug-in hybrid and electric vehicles by 2020.

The news follows an announcement last week that Honda will partner with General Motors to produce hydrogen fuel cell power systems. A definitive agreement of this electric motor company deal is due to be signed at the end of March.