France's PSA Peugeot-Citroen and China's Dongfeng Motor Group will reportedly spend $216 million on a joint project to develop a platform to manufacture small, energy efficient cars, the French company said ahead of a briefing on Sunday, Reuters reported.
The two sides will also build a joint technology center in Shanghai dedicated to developing cars for Asian markets, the report said.
"The new platform will enable PSA Peugeot Citroen and DFG to manufacture vehicles in their respective growth regions," it said in a statement, adding that using Dongfeng's supplier base would allow it to cut costs and compete regionally.
It said 60 percent of the expenditure would be committed by PSA, with the remaining 40 percent from Dongfeng.
Dongfeng reported a 22% rise in 2014 net profit, as the launch of new models boosted demand for cars from China's second-biggest auto maker by sales.
Net profit for the year rose to 12.8 billion Chinese yuan ($2.1 billion) from 10.5 billion yuan in 2013, Dongfeng said in a statement to the Hong Kong stock exchange late March. In 2014, the company's passenger-vehicle sales grew 10% to 2.34 million units.
Dongfeng produces a full line of passenger vehicles in China through partnerships with Nissan Motor Co., Honda Motor Co. and PSA Peugeot Citroen SA.
Last year, Dongfeng and the French state agreed to buy 14% stakes each in PSA Peugeot Citroen by subscribing to a capital increase of at least 3 billion euros ($4.17 billion).
At a time of intense domestic competition, Dongfeng is looking for more opportunities to sell its vehicles abroad. Peugeot aims at boosting the Chinese company's quality and international reputation. The agreement includes plans to build a joint research-and-development center in China.
Dongfeng is already in the Iranian market selling a limited number of vehicles. News of the joint venture between the French and the Chinese will likely have a knock-on effect in the local auto market. Jointly produced car designs are likely to make their way to Iran's forecourts.
In July 2014, Iran Khodro, said it had teamed up with Dongfeng and would produce on average 2700 cars in the previous year.
