Fiat Chrysler has proposed a €32.6 billion, or $36.5 billion, all-share merger with its fellow automaker Renault.

Such a deal would create the world's third-largest car manufacturer, behind Volkswagen and Toyota.

The merger would represent a major shift for the auto industry and spark plans to boost electric-vehicle production.

Fiat Chrysler is in merger talks with Renault, proposing a €32.6 billion, or $36.5 billion, all-share deal that would create the world's third-largest carmaker in production terms, behind Volkswagen and Toyota.

Fiat Chrysler and Renault would each own half of the new business, which would be larger than General Motors with sales of 8.7 million vehicles a year and combined annual revenue of €170 billion, Fiat Chrysler said in a release.

The deal would be meant to help the combined brands boost their presence in the rapidly growing electric-vehicle and autonomous-driving markets, which is being targeted by Silicon Valley.

Fiat Chrysler Automobiles is part-owned by the Agnelli family, while the French government has a 15% stake in Renault. Differences in market value mean that FCA shareholders would receive a €2.5 billion dividend. The company's shares were trading up 10% as of 9:45 a.m. in London (4:45 a.m. ET); Renault's stock was up 15%.

Renault and Nissan have had a strategic partnership, which later included Mitsubishi, since 1999. The alliance was partly the brainchild of Carlos Ghosn. The 64-year-old former Renault CEO has been in and out of jail in Japan, having been arrested in November on suspicion of misreporting his salary and compensation. He denies the charges.