SHANGHAI--Germany's Daimler AG and China's Zhejiang Geely Holding Group Co. will form a premium ride-hailing company in China, using Daimler's Mercedes-Benz cars and electric vehicles made by Geely, the companies said Wednesday.
A partnership between Geely and Daimler has looked likely ever since Geely Chairman Li Shufu amassed a 9.7% stake in Daimler in February, becoming the company's largest shareholder. Geely also owns Sweden's Volvo Car Group.
Daimler builds cars in China with another local auto maker, state-run BAIC Motor Corp., making mobility services the obvious space in which to collaborate. The new ride-hailing service will operate as a 50-50 joint venture, the companies said, and is expected to begin operations in 2019.
Geely offers a ride-hailing service called CaoCao, which remains small compared with China's dominant ride-hailing player, Didi Chuxing. Didi outlasted Uber in a costly battle for control of the Chinese market.
Uber quit China in 2016 in return for a 20% stake in Didi, which is backed by tech giants Tencent Holdings Ltd. and Alibaba Group Holding Ltd.
"With Geely Group, we have found an excellent partner to expand our mobility services in China," said Klaus Entenmann, chief executive of Daimler's financial-services unit, following the signing of a memorandum of understanding at Daimler's Stuttgart headquarters.
The ride-hailing service will be part of Geely's "transformation from a vehicle manufacturer into a global automotive-technology group," Geely President An Conghui said.
The century-old automotive industry is facing top-down technological change that is forcing auto makers to confront a future in which fewer people will buy automobiles and more will use Uber-style smartphone-based mobility services. Some are choosing to pool resources to help manage the transition from making cars to providing digital services.
In March, Daimler and BMW AG said they would team up to provide mobility services in Germany. Last month, Ford Motor Co. set up a 50-50 joint venture with local manufacturer Zotye Auto to deliver ride-hailing services in China.
"It's a smart move for Geely to collaborate with Daimler to play this new game," said Bill Russo, founder of Shanghai-based consultancy Automobility. Geely gets access to a prestigious brand and a technology pipeline, while Daimler gets access to a large mobility-services market, he added.
Challenging China's tech giants for a slice of the ride-hailing market won't be easy for companies, like Daimler and Geely, that come from a manufacturing background, auto analysts say.
"The biggest challenge is getting onto people's phones as an app," said Janet Lewis, Macquarie Capital Research's managing director of equity research. Moreover, the big ride-hailing incumbents like Didi and Uber already provide a full range of services through their apps, countering auto makers' efforts to differentiate by offering premium rides.
Indeed, some auto makers are seeking to join forces with Didi and draw on its software smarts rather than attempt to offer rival services.
In April, Volkswagen AG said it was close to forming a joint venture with Didi to develop ride-hailing services. The same month, Didi said it had formed an alliance with 31 other entities--including Toyota Motor Corp., Volkswagen and the Renault-Nissan-Mitsubishi partnership--to develop vehicles and operating platforms for future mobility services.
Write to Trefor Moss at Trefor.Moss@wsj.com