German luxury automaker Daimler AG and auto part manufacturer Robert Bosch GmbH plan to establish a 50:50 joint venture in the development and production of electric motors for all-electric vehicles in Europe.

The companies have signed a letter of intent and begun negotiations to establish a joint venture that should be concluded in the first half of 2011, the carmaker said in a statement.

According to their letter of intent, joint production should start in 2012. It is envisioned that the electric motors developed will be used in Mercedes-Benz and smart electric vehicles from 2012, it said.

Following the production, sales will be handled by Bosch and the joint activities will be located in the greater Stuttgart area and in Hildesheim.

The governments across the world have set aside billions of dollars in the form of subsidies for early adopters of these alternative energy cars and to boost production of batteries for such vehicles despite persisting doubts about how many people will actually buy them.

The Department of Energy said it is investing $2.85 billion in electric vehicles of which $2 billion will go to help US carmakers produce advanced vehicle batteries and drive train components. Around $400 million will be invested to buy, test, and deploy different types of electric vehicles in the marketplace, and $300 million in cost-share projects under the Clean Cities program.

According to a recent report from Bloomberg New Energy Finance, plug-in electric vehicles, including plug-in hybrids and battery electric vehicles, have the potential to make up 9 percent of auto sales in 2020 and 22 percent in 2030 (1.6 million and 4 million vehicle sales respectively).