South Korean automaker Hyundai Motors (OTC:HYMTF) is set to manufacture electric vehicles (EVs) for Chinese EV maker Arcfox, a brand co-owned by BAIC Motor Corp. (OTC:BMCLF).

As per a report from the Korean Economic Daily Global, the two companies have agreed to produce Arcfox EVs at Hyundai's Beijing plant.

Arcfox, a 50-50 joint venture between Hyundai and BAIC Motor Corp established in 2017, has several models already in production, including the Alpha-S, which bears similarities to Tesla Inc's (NASDAQ:TSLA) Model S and Hyundai's IONIQ 6.

Discussions are still ongoing, and if the agreement materializes, this would be the first time Hyundai produces EVs under a foreign brand.

"The cooperation suggests Hyundai has yet to give up on the Chinese market," an industry source said.

Hyundai's market share in China has dropped from a peak of 7% to less than 1% last year, with only 254,000 units sold. Hyundai hopes to invigorate its brand by manufacturing EVs under the new brand.

The South Korean automaker has already sold one of its five factories in China to Li Auto in 2021. Despite a 9% sales increase in the first eight months of 2023, Hyundai is still struggling to regain a significant market share.

The decision to manufacture Arcfox EVs could provide Hyundai with an opportunity to strengthen its position in the Chinese market.