FRANKFURT/BEIJING (Reuters) - Daimler will build its next generation of Smart electric cars in China through a joint venture with Geely, as a way to increase economies of scale in a market segment that is struggling to turn a profit.

FILE PHOTO: A Smart Fortwo Cabrio Electic Drive car is plugged at a recharging station during the 87th International Motor Show at Palexpo in Geneva, Switzerland, March 8, 2017. REUTERS/Arnd Wiegmann/File Photo

China’s Geely built a stake of almost 10 percent in Daimler last year, saying it wanted to forge an alliance to develop electric and self-driving cars to better compete against new competitors such as Uber and Google.

Daimler said on Thursday it would build the next generation of Smart-branded city cars at a purpose-built factory in China, and planned to share its expertise in manufacturing, engineering and design with Geely.

The high cost of electric car batteries has made it hard for automakers to build affordable zero-emissions vehicles, leading several of them to strike alliances with Chinese partners.

Daimler’s German rival BMW recently unveiled plans to build electric Minis in China, where production costs are low and demand for small electric cars is rising.

Daimler and Geely did not disclose financial terms of their deal. The details of the joint venture will be finalised by the end of 2019, they said in a joint press release.

Daimler currently develops and builds Smart cars with Renault, and constructs the small vehicles at factories in France and Slovenia.

The Daimler factory in Hambach, France, will be retooled to build Mercedes-Benz cars, it said.

Geely has been expanding rapidly through mergers and acquisitions since 2010, when it acquired Swedish carmaker Volvo from Ford Motor Co. Last year, Daimler and Geely set up a ride-hailing joint venture in China.

Daimler’s Chief Executive Dieter Zetsche said last month the German carmaker was in talks to deepen its alliance with Geely after the Chinese’s group’s chairman Li Shufu bought a 9.69 percent stake in Daimler in 2018.