A Renault vehicle. Photograph by Dhiraj Singh/Bloomberg The French auto giant Renault is returning to China through a partnership with Geely Holdings Group in a move that could eventually pose a challenge to Tesla in the electric-vehicle market.

The focus of the alliance, announced on Monday, is on Renault-branded gasoline-electric hybrid cars, but the auto makers are also discussing the production of fully electric vehicles, Reuters reported , citing sources it didn’t identify.

China is the world’s largest car market, so any move toward producing a Renault-branded EV there could be significant for Tesla . The Tesla Model 3 was the biggest selling electric car in the country last year.

Read: Tesla Stock Is Rallying Again. Thank China.

While Tesla leads the market for premium battery-powered vehicles, Geely owns the high-end Swedish brand Volvo and is well established in China, leading the market in terms of auto sales there. This spring, Geely announced plans to make upscale electric cars under its Zeekr brand.

The opportunity for manufacturers is huge, given that Beijing is hoping that one-fifth of all vehicles sold in the country will be electric within four years. Yet competition is fierce: Nio (NIO) and Xpeng (XPEV) are strong players domestically, while non-Chinese companies have been investing heavily in an attempt to catch up with Tesla.

Renault has been in the country before through a joint venture with China’s Dongfeng Motor Group that ended last year.

A memorandum of understanding on the new partnership calls for Renault Group and Geely Holding to share resources and technologies in targeting the Chinese and South Korean markets. “The focus will be on hybrid vehicles in the fast-growing Asian markets,” a joint statement from the companies said. “Both partners will continue to explore in-depth further potential, under the spirit of open and innovative partnership mode.”

In China, the companies will jointly introduce Renault-branded hybrid vehicles using Geely technology and manufacturing facilities. Renault will contribute in terms of sales and marketing.

In South Korea, where Renault has sold cars for more than two decades, the pair will introduce Geely’s Lynk & Co’s hybrid vehicles.

The partnership is similar to a 2019 agreement between Geely and Germany’s Daimler . The companies planned to manufacture Smart-brand EVs based on Geely technology in China and sell them using Daimler’s global sales network, according to Reuters.

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Consolidation and new partnerships have become key in an automotive industry that has struggled with declining sales during the pandemic, only to rebound and then suffer due to chip shortages amid ongoing structural changes. Drivers are pivoting away from gasoline-powered vehicles as governments set more stringent targets for greenhouse-gas emissions.

But Renault knows from its alliance with Nissan , where the balance of power and responsibilities has been a challenge, that partnerships don’t always operate smoothly.

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