BERLIN -- Daimler will cooperate with China's Geely to build a next-generation combustion engine for use in hybrid vehicles.
"The companies plan to develop a highly efficient modular engine," a Daimler spokesman said on Tuesday.
The engine will be used in hybrid drivetrains and manufactured in Europe and China, the spokesman said.
The manufacture of combustion engines will continue in Germany but the automaker's German factories will be retooled gradually to build electric drivetrains, Daimler said.
The partnership was first reported reported by German business daily Handelsblatt.
Citing Daimler sources, Handelsblatt said the tie-up would save the German automaker a "triple-digit million sum" -- implying an amount above 100 million euros ($119 million) and less than 1 billion euros.
Daimler will develop the engines, Handelsblatt said.
Geely owns a 9.69 percent stake in Daimler.
News of the tie-up was a surprise to Daimler's works council at its factory in Untertuerkheim, Germany, which specializes in electric and gasoline powertrain assembly.
"We are speechless. There was not even a discussion about potential alternative manufacturing locations," said Michael Haeberle, the works council chief for Untertuerkheim. "We have the ability to build four cylinder engines in Untertuerkheim but there were not talks about it."
The Daimler-Geely engine tie-up does not mean the end of cooperation between Daimler and Renault, a Renault spokeswoman told Automotive News Europe.
Current engine projects between Renault, Daimler and Nissan will continue and new opportunities are being studied, the spokeswoman said.
A joint Renault-Daimler 1.3-liter gasoline engine is used in models such as in the Renault Scenic crossover and Megane hatchbacks and in front-wheel-drive Mercedes models such as the A Class.
Mercedes uses Renault's 1.6-liter, four-cylinder diesel engines coupled with Renault transmissions in the Vito light commercial van. A 1.5-liter diesel engine produced by Renault is used in Mercedes A- and B-class models, as well as the CLA and GLA crossovers.
Peter Sigal in Paris and Reuters contributed to this report