BERLIN (Reuters) - German carmaker Daimler will cooperate with China's Geely to build a next-generation combustion engine for use in hybrid vehicles, it said on Tuesday.
"The companies plan to develop a highly efficient modular engine," a spokesman for Daimler said, adding that it would be used in hybrid drivetrains and manufactured in Europe and China.
German factories will be retooled gradually to build electric drivetrains while the manufacture of combustion engines will continue in Germany, Daimler said.
The alliance was first reported by German business daily Handelsblatt on Tuesday, citing company and industry sources.
Most of the engines will be made in China, Handelsblatt said. The alliance with Geely, which owns a 9.69% stake in Stuttgart-based Daimler, means that an existing partnership with Renault will expire.
Citing Daimler sources, Handelsblatt said the Daimler-Geely pact would save the German carmaker a "triple-digit million sum" - implying an amount above 100 million euros ($119 million) and less than 1 billion euros.
($1 = 0.8426 euros)
(Reporting by Jan Schwartz and Douglas Busvine; Editing by Maria Sheahan and David Goodman)