In 1937, the GABTU decided to modernise all outdated armored fighting vehicles made before 1930 in order to make them useful in modern war. T-18 tanks played an important role in this modernisation program. The primary attention was paid to an exchange of the powertrain. The GAZ-M1 engine coupled with the radiator and the transmission from the T-38 tank was considered. For this purpose, the engine compartment was rebuilt. The turret shape changed again, the new conical lid was made of high-carbon steel and replaced the mushroom-shaped commander's cupola. The rear niche of the turret was removed. This tank received the T-18M index. The conversion of the T-18 to the T-18M was made by Factory #37 (in Ordzhonikidze, today Vladikavkaz City). Testing of the upgraded vehicle took place in March 1938. A speed of 24.3 km/h was reached, but the old engine did not function well in fourth gear (the planned speed was 33-35 km/h). Because the centre of gravity shifted backwards, the tank was unstable on wet roads and showed poor uphill torque. The verdict was that the idea of using the GAZ-M1 powertrain was reasonable. However, the battle value of T-18M was negligible when compared to the modernisation cost.