The investment will fund the development of a new test and integration laboratory at the company’s Broad Oak site in Portsmouth, UK.
The research builds on the advances seen in electric cars and could signal a new generation of propulsion systems for a broad range of defence applications.
“Our aim is to develop the next generation electric propulsion system which will be cleaner, greener, safer, more powerful, longer lasting, rechargeable and, in some cases, even able to operate underwater,” said BAE Systems Project Manager Clare Gribby.
“We’ve already invested around £1m in concept and design work and will be moving towards the build and integration phase of a demonstrator in early 2019.
“The demonstrator is due to be up and running by September 2020.”
BAE Systems is already working closely with a number of small, highly specialised companies in the UK and Europe to develop the project.
It is also drawing on the expertise of BAE Systems colleagues in Rochester, UK, who produce electric drive systems for hybrid buses in a number of major metropolitan cities around the world, including London, Paris and Hong Kong.
The company announced the news at the start of Euronaval, the major international naval defence event in Paris, which attracts more than 400 exhibitors from 34 countries.