"Shanghai GM has started making the electric New Sail and a prototype will be available at the year-end," a source with knowledge of the matter told Reuters.

Initially it will roll out a small number of electric New Sail cars to test the market, said the source. A GM China spokeswoman confirmed the plan.

In June, Beijing unveiled a pilot scheme to provide incentives in five cities of 60,000 yuan ($9,000) to buyers of electric vehicles, and up to 50,000 yuan to purchasers of plug-in hybrids.

The subsidies are available only for vehicles built in China. The locally made electric New Sail would be eligible for the subsidies.

In addition to the New Sail, Shanghai GM - a joint venture between GM and SAIC Motor Corp. - will launch the plug-in Chevy Volt and a hybrid version of the Buick New Regal next year.

Other foreign automakers are joining the EV race. Tianjin FAW Toyota Motor Corp., a joint venture between Toyota Motor Corp.

and China FAW Group, reportedly has developed an electric vehicle for the Chinese market.

According to the Beijing News, Toyota's EV is built on the platform of the Toyota Reiz compact car. Production is expected to begin in 2012.