The parent company of Mercedes-Benz is in talks to build electric versions of its tiny Smart branded cars in China with a local partner, Bloomberg reported Monday, citing anonymous sources.

Daimler is in talks to start a joint venture with Chinese manufacturer BAIC Group subsidiary Beijing Electric Vehicle, or BJEV, Bloomberg reported. Foreign companies wishing to do business in China typically must set up partnerships with Chinese companies.

It is a sign that Daimler is continuing to step up its electric vehicle efforts, and take further advantage of the increasingly hot market for electric cars in China.

Daimler was not immediately available for comment to CNBC and declined to comment to Bloomberg.

Daimler's Smart car subsidiary makes small vehicles known as "microcars" and subcompact cars. Smart cars have been a tough sell in many markets — particularly in the United States. But Daimler has been betting the cars will appeal to consumers looking for efficient and nimble vehicles well-suited to crowded environments, such as dense cities.

The size of Daimler's stake in the joint venture was unclear, Bloomberg reports. But the two companies have a history of collaboration. Daimler took a nearly 4 percent stake in BJEV in March specifically to further development of electric vehicles. In February, the German manufacturer signed a deal with BAIC to build a $1.9 billion factory for Mercedes-Benz vehicles.

China's electric vehicle market is dominated by local companies, but non-Chinese carmakers have sought to gain a slice of the world's largest car market through joint ventures or other strategies.

For example, Tesla is looking to build a factory in China, which it plans to fund through a loan from a Chinese bank, Tesla CEO Elon Musk said when the company reported second-quarter earnings last week.

Daimler is also investing in electric vehicles outside of China. The company has been building electric freight trucks and plans to release several electric vehicles over the next few years under the Mercedes-Benz brand name.

Read the full story at Bloomberg.