Fiat Chrysler (FCA) and Hon Hai are negotiating to set up a 50-50 joint venture, Hon Hai said in a statement. It added Hon Hai would hold its 50% share both directly and indirectly and that its direct shareholding would not exceed 40%.
Hon Hai is the parent of Foxconn, the Chinese assembler of Apple iPhones.
FCA last month reached a binding agreement for a $50 billion tie-up with France's PSA that will create the world's No. 4 carmaker.
The joint venture with Hon Hai will produce vehicles for the Chinese market, but many details of the accord are still to be worked out, one source close to the matter said, adding that a final deal was expected to be signed in the coming months.
Foxconn has been investing heavily in a variety of future transportation ventures for several years, including Didi Chuxing, the Chinese ride services giant, and Chinese electric vehicle startups Byton and Xpeng.
Foxconn also has invested in Chinese battery giant CATL and a variety of other mostly Chinese transportation tech start-ups.
FCA will launch its first full-electric model - the 500 small car - this year.