BERLIN, Germany - Europe's biggest carmaker Volkswagen said on Monday that it was considering a tie-up with Chinese company BYD on hybrid or electric cars.

VW said its head Martin Winterkorn and BYD chief Wang Chuanfu signed a letter of intent last week, citing possible cooperation on electric cars using lithium-ion battery technology.

"Especially for the Chinese market, potential partners such as BYD could help us expand our activities," VW board member Ulrich Hackenberg said in a statement.

China is VW's second largest market after Germany and is widely seen as a key producer and consumer of autos, with major foreign marques having set up plants there in the past few years to take advantage of soaring demand.

BYD, formed in 1995, is now the world's second largest producer of lithium-ion batteries and began auto making in 2003.