Geely and Renault to Jointly Develop Gasoline Engines and Hybrid Technology

China’s Geely Automobile Holdings (0175. HK) and French car maker Renault SA (RENA.PA) said on Tuesday they would invest up to 7 billion euros ($7.71 billion) in a new equally held joint venture to develop gasoline engines and hybrid technology for automobiles. The JV aims to manufacture more efficient internal combustion engines and hybrid systems at a time when the focus of much of the automobile industry has been on the capital-intensive transition to purely electric vehicles.

The companies did not disclose financial terms but said the joint venture would be established this year with an annual production capacity of 5 million powertrains. The company said it will have 17 engine plants, five research and development centers on three continents, and 19,000 employees. They added that it would supply brands owned by or linked to the partners, including Renault, Dacia, Nissan, Volvo Cars, and Lynk & Co’s Proton brand. It will also sell its products to third-party automakers.

Geely and Renault have been working to finalize a deal with Saudi Arabia’s state-owned oil giant, Aramco, where the company would invest up to 20% of the JV. The companies had been in advanced discussions about the partnership earlier this year.

Aramco has been looking to expand its presence in the automotive world and tap into demand for alternative fuels such as liquefied petroleum gas and battery-powered cars that don’t emit pollution when in operation. Big oil producers have previously worked with automakers to develop hybrid vehicles that reduce their dependence on crude.

The deal with Geely and Renault could lead to creating of a new global leader in hybrid technologies that will provide “low-emission advanced solutions for automakers around the world,” Renault CEO Luca de Meo said. “As Renault accelerates its Renaulution transformation to capture value on the entire new automotive value chain, we are pleased to work with Geely to keep advancing ICE and hybrid technology.”

Aramco, which has been seeking to diversify beyond oil, has, in recent years, focused on developing sustainable fuels and next-generation hydrogen technologies for vehicles. Last year, it partnered with Hyundai Motor Co to study advanced fuels that can be used in hybrid engines to lower carbon dioxide emissions.

The company’s executive team will comprise equal members from each partner, with a board of directors to formulate and execute strategy and set direction. Aramco’s investment is expected to support the growth of the JV, and it will contribute critical research in synthetic fuel solutions and next-generation hydrogen technology. The companies said the agreement is subject to the approval of both automakers’ boards. Reuters was the first to report that Aramco was in advanced talks to take up to 20% stake in the new joint venture with Renault and Geely, without citing sources. The companies later confirmed the news. Reuters has seen an outline of the deal prepared by the automakers, and is being reviewed by Aramco’s senior management.