Zhejiang Geely Holding - which owns Volvo Cars, is in talks with Daimler, in which billionaire owner billionaire Li Shufu took an almost 10% stake earlier this year, to set up ride-hailing and car-sharing services in China, sources told Bloomberg.

A 50-50 venture that would take on market leader Didi Chuxing was under discussion, one source said.

Geely would join forces with Daimler to create mobility services, an area that has been dominated so far by tech companies like Didi and Uber.

"Li acquiring the stake in Daimler does have a very clear strategic rationale and industry logic," Bill Russo, chief executive officer of Shanghai-based advisory firm Automobility, told Bloomberg.

"The JV, as the first step of the collaboration, is good evidence of that."

The discussions between Daimler and Geely haven't been finalised, according to the Bloomberg sources. Spokesmen for Stuttgart-based Daimler and Geely, based in Hangzhou, China, declined to comment to Bloomberg.

Li has said that his Daimler investment forms the basis for partnerships in an era where traditional manufacturers can no longer go it alone against new entrants with fresh technology.

Daimler is considering using cars from its electric-vehicle brand Denza, its joint venture with Warren Buffett-backed BYD, the Bloomberg sources said.

Geely is a more commercially compatible partner for Daimler than BYD because it has a better understanding of the nuances involved in shared services and "has a good background for doing business with multinational companies," Russo told Bloomberg. Together, the two can offer the widest range of services, "from entry level to premium."

At the Paris show last week, Daimler chief executive officer Dieter Zetsche described the talks with Geely over possible projects to Bloomberg as "very constructive", saying that they look "very promising so far". He declined to specify which areas of collaboration have been discussed so far.

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