Volkswagen AG (www.volkswagenag.com) is said to be exploring a joint venture to make electric cars in China with a state-run company, according to a report in the Financial Times.

The German car maker has signed a Memorandum of Co-operation with China Anhui Jianghuai Automobile Co (known as JAC) (jacen.jac.com.cn) for a potential partnership, the companies said in separate statements.

The Chinese firm said the two will share equal ownership of the joint venture and are aiming for a formal agreement within five months.

VW CEO Matthias Müller said: “As we aim to be at the forefront of e-mobility, Volkswagen Group is looking forward to explore all options to set up a close and mutually beneficial partnership with JAC. VW is targeting sales of one million electric vehicles a year world-wide by 2025.”

VW, which derives more than a third of its global vehicle sales from China after three decades of operations there, currently has two car-making partners in the country: SAIC Motor Co in Shanghai and FAW Group Co in the north east of the country.

Officials at SAIC and FAW did not reply to requests for a comment on the news. Analysts say VW may be able to agree a more favourable agreement with JAC than its current partners. Bill Russo, from the Shanghai-based consultancy Gao Feng Advisory Co, said: “You may get a better agreement from a company that values your technology more. SAIC and FAW may already have electric-vehicle technologies and do not need VW as much as JAC.”

The Chinese government spent 90 billion yuan ($14 billion) in the electric-vehicle sector last year, including direct cash subsidies for electric-vehicle makers and the construction of public charging stations, according to UBS Securities.

Sales of electric and hybrid cars and buses quadrupled in 2015 from the previous year to 331,000 vehicles. In the first seven months of this year, sales of such vehicles increased 23% to 207,000 units.