Volkswagen AG has signed a memorandum of understanding with China's Anhui Jianghuai Automobile (JAC Motor) to explore making electric vehicles in a new joint venture.

JAC Motor said that both companies would explore the feasibility of a joint venture with an aim to sign a formal agreement within five months. JAC Motor has stopped trading in its shares because it plans to sign a cooperative memorandum of understanding.

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The investment size and business model of the possible joint venture have not been finalized. The memorandum of understanding is not legally binding, and a final agreement would be subject to approvals and filing procedures from both companies, according to Fortune. 

The joint venture would be focussed on the research and development, manufacturing and sales of renewable energy vehicles, providing Chinese consumers with highly cost-effective battery electric vehicle merchandise. Volkswagen said that the main goal of the exploration is to develop “zero-emission mobility.” A company spokesman said the partnership would most likely focus on pure battery electric cars rather than hybrids.

The deal comes as Beijing is planning to develop its growing electric car industry with incentives and other government support in a bid to enhance the country's environmental credentials and lessen air pollution, The Economic Times reported. 

Global auto brands are only allowed to manufacture cars domestically in China by developing joint ventures with local partners, with automakers typically limited to two JV partners. Volkswagen has joint ventures with SAIC Motor and China FAW Group.

China's leading electric car manufacturer BYD has partnered with Germany's Daimler, while French car maker PSA Peugeot Citroen said that it would hands join with Dongfeng Motors to develop electric cars in 2019.

Tagsvolkswagen, china, JAC Motor, Electric cars, BYD, electric car industry