Beijing Automotive Industry Holding Corp is in talks with Fujian Motor Industry Group to replace it as the local partner in a commercial vehicle tie-up with Daimler AG (DAIGn.DE) in southeast China, a source said on Tuesday.

Beijing Auto, which already makes Mercedes-Benz cars in partnership with Daimler in China, wants to take the 50 percent stake held by Fujian Motor in its van manufacturing venture with the German automaker, said a source, briefed on the matter.

Fujian Daimler Automotive, in which Daimler and China Motor Co hold a 34 percent and 16 percent stake, respectively, was established in June 2007, with an annual capacity of 40,000 units.

The facility, based in the city of Fuzhou, will start making Vito and Viano vehicles later this year and Mercedes-Benz Sprinter next year.

Earlier this year, Daimler reached agreement with Beijing Auto's subsidiary Beiqi Foton (600166.SS) to make heavy-duty trucks.

If the deal with Fujian Auto comes through, it could be the third vehicle manufacturing venture between the two partners.

Ulrich Walker, Chairman and CEO for Daimler Northeast Asia operations, declined to comment on the ongoing discussions between its two Chinese partners.

What we need is a strong partner, Walker told reporters in a briefing prior to the launch of its all new Mercedes-Benz E class sedan in Shanghai, priced at 618,000 yuan to 668,000 yuan ($90,480-$97,800).

Local production of the new E class model will start in October with China-made parts accounting for more than 40 percent of the total, said Daimler executives.

Daimler's Mercedes-Benz unit, which competes with BMW (BMWG.DE) globally, sold 27,000 cars in China in the first half, up 50 percent from a year earlier.

Walker declined to give a full-year sales target but said he was optimistic about the second half as Beijing's aggressive economic stimulus package had effectively bolstered consumer confidence in the world's largest auto market. ($1=6.830 Yuan) (Reporting by Fang Yan and Jacqueline Wong)

China Daimler AG