Wanxiang Group Corp, a Chinese producer of automobile parts, plans to invest up to $450 million in A123 Systems Inc, a US-based producer of lithium-ion batteries, to take advantages of opportunities in China's booming electric battery industry.

On Thursday, the two parties signed a non-binding memorandum of understanding that could give Wanxiang an 80 percent stake in A123, which has reported losses for at least 12 straight quarters. For the quarter that ended on June 30, A123 reported a loss of $82.9 million.

Wanxiang and its related companies, for their part, had more than $13 billion in revenue in 2011.

Wanxiang's proposed investment in A123 is intended to give the ailing US company the capital it needs to continue expanding its main business.

"We believe the memorandum will provide long-term value to the investors and other stakeholders in both companies, as well as to their customers," said Lu Weiding, CEO of Wanxiang, one of China's largest private companies measured by revenue.

Lu said both companies are good at manufacturing equipment used in electric vehicles and energy storage, and the agreement will allow them to find ways to complement each others' strengths.

David Vieau, CEO of A123, had similar thoughts.

"Substantial capital investment from Wanxiang would not only provide financial stability to A123 as we continue to grow, but it would also align us with a large, successful global brand in the automotive and green technology industries," he said.

"We expect that a strategic agreement with Wanxiang would help enhance our competitive position in the global market, especially in China."

China is in the vanguard of countries that produce electric vehicles. Policymakers are calling for more investment to go into alternative energy vehicles and infrastructure as worries about the country's dependence on oil imports become more intense.

In July, China said it aims to produce and sell 500,000 energy-efficient and alternative-energy vehicles annually by 2015, most of them being pure electric and plug-in hybrids vehicles. That number is to increase to 5 million by 2020.

The plan came after the government said it will provide 26.5 billion yuan ($4.16 billion) in subsidies to stimulate purchases of energy-saving products — mainly automobiles and household appliances.

The central government also plans to provide as much as 2 billion yuan in annual subsidies, starting this year, to support the manufacture of new-energy vehicles.

Li Shengmao, automotive analyst with the research institute CIConsulting, said having 1 million electric vehicles on the road would be enough to support a 70 billion yuan market for lithium batteries, saying the cost of equipping a single electric vehicle with a battery system can be as much as 70,000 yuan.

Contact the writer at lifangfang@chinadaily.com.cn