Toyota had planned to unveil the bZ3, which uses BYD's less bulky Blade batteries, at the Beijing auto show in April, but the event was cancelled because of the COVID-19 pandemic, the sources said. They declined to be named because the plan is not public yet.
A Toyota spokesperson in Beijing declined to comment.
The car is roughly the same size as Toyota's Corolla but with a bigger back-seat, the sources said.
The bZ3's pricing could not be determined, but one source said it would likely sell for around $28,000, nearly 30 percent less than an entry-level Tesla Model 3.
The bZ3 will be produced in Tianjin at a pace of 30,000 vehicles a year on the same assembly as the bZ4X, two sources said. The plant is jointly operated by Toyota and one of its two Chinese partners, FAW Group.
There are no plans for Toyota's other joint venture with GAC Motor to produce the bZ3, the three sources said.
Toyota has long advocated a small car that does not compromise on comfort as the best way to popularize EVs, but it has struggled to produce one.
The need to stack bulky batteries under the floor has typically eaten up interior space unless the roof is raised, which is why many EVs are taller crossovers.
The bZ3's smaller sedan configuration has become feasible chiefly because of BYD's thinner lithium-iron-phosphate (LFP) Blade battery technology.
One source said earlier a typical Blade pack is about 3.9 inches thick when the modules are laid flat on the floor, roughly 2 inches thinner than other lithium-ion packs.