Henry Foy, a correspondent for the Financial Times, said the cooperation comes as "all global carmakers explore partnerships and joint ventures to reduce costs and grow in new markets".
"The moves are designed to cope with the worst European car market in two decades and unprecedented pressure to innovate into new areas, such as more fuel-efficient cars," he added.
But Dieter Zetsche, the chairman of Mercedes and its parent Daimler, said the alliance with Renault does not mean the two F1 engine suppliers will work together in developing their engines for grand prix racing.
"No," he insisted during an interview with Germany's Auto Motor und Sport.
"While we do cooperate, we do not do any common advertising campaigns. And part of our marketing is motor sport.
"We have also said that if the 'common engine' was introduced in formula one, that would be our signal to leave," explained Zetsche.
"Engines are a core competency for us and we want to show that we can build the best one," he added.