BEIJING -- Daimler will build its next generation of Smart electric vehicles in China through a joint venture with Geely as a way to increase economies of scale in a market segment that is struggling to turn a profit.
China's Geely built a stake of almost 10 percent in Daimler last year, saying it wanted to forge an alliance to develop electric and self-driving vehicles to better compete with new competitors such as Uber and Google.
Daimler said Thursday it would build the next generation of Smart-branded city cars at a purpose-built factory in China, and planned to share its expertise in manufacturing, engineering and design with Geely.
The high cost of EV batteries has made it hard for automakers to build affordable zero-emissions vehicles, leading several of them to strike alliances with Chinese partners.
Daimler's German rival BMW recently unveiled plans to build electric Minis in China, where production costs are low and demand for small electric cars is rising.
Daimler and Geely did not disclose financial terms of the deal. The details of the joint venture will be finalized by the end of 2019, they said in a joint statement.
Daimler develops and builds Smart cars with Renault, and constructs the small vehicles at factories in France and Slovenia.
The Daimler factory in Hambach, France, will be retooled to build Mercedes-Benz cars, it said.
Geely has been expanding rapidly through mergers and acquisitions since 2010, when it acquired Swedish carmaker Volvo from Ford Motor Co. Last year, Daimler and Geely set up a ride-hailing joint venture in China.
Daimler CEO Dieter Zetsche said last month the German carmaker was in talks to deepen its alliance with Geely after the Chinese's group's chairman Li Shufu bought a 9.69 percent stake in Daimler in 2018.