French manufacturer of cars Peugeot Citroen has revealed that it is currently tied in talks with Japan's giant automobile manufacturer Mitsubishi Motors over a possible "strategic partnership". Both the firms already operate jointly in Russia, on electric cars and development of four-wheel drive vehicles.

"It's true that we are discussing various possibilities, and a capital tie-up is among them", confirmed a Mitsubishi spokesman.

The deal would reportedly mean Peugeot's effective takeover of Mitsubishi through the purchase of a 50% stake. However, the Japanese firm buying a stake in the French car maker is also a possibility.

In the current fiscal year's first half, Mitsubishi reported a loss of more than $400 Million, and the new development has come contrary to the firm's earlier announcement that it would not get into any alliances and go alone with the Mitsubishi Group backing it.

"It's good news for Mitsubishi Motors. While Mitsubishi Motors still faces other challenges... a Peugeot deal would be positive for its electric vehicles business", said Toshihiko Tabei from Kazaka Securities in Tokyo.