The latest round of fundraising comes as China's government promotes new energy vehicles (NEVs), a category comprising battery-powered and plug-in battery-petrol hybrid cars, to help reduce air pollution and support high technology development.
Byton is keen to primarily attract foreign investors in its latest fundraising and the proceeds will be mainly used to finance the mass production of its first premium electric SUV vehicle - Byton M-Byte and research and development, one of the sources said on condition of anonymity as discussions are still private.
Electric vehicle manufacturer Tesla Inc broke ground on Monday for its Shanghai plant where it plans to begin producing its Model 3 EV by year-end, a first step in localising production in the world's largest auto market.
The so-called Gigafactory is the country's first wholly foreign-owned car plant, a reflection of China's broader shift to open up its car market, even amid a trade war with Washington, which has seen a rise in tariffs on cars imported from the United States.
Byton's chief executive and co-founder Carsten Breitfeld told Germany's Automobilwoche in October last year that the firm may launch an initial public offering to fund expansion and would seek another round of fundraising from private investors prior to the IPO.
Already backed by China's retail giant Suning and Hong Kong-based property developer and healthcare services provider Fullshare Holdings, Byton earlier last year lured new investors including state-owned carmaker FAW Group [SASACJ.UL] and battery supplier Contemporary Amperex Technology Co in its $500 million Series B round of funding.
The company is working on its Series C round of fundraising, a Byton spokeswoman said, but declined to provide further details.
The company which runs offices in China, the Unites States and Germany, is one of several largely Chinese-funded EV startups betting on the benefits of local production to compete with Tesla and other auto giants. Its local rivals include Nasdaq-listed NIO Inc and Xpeng Motors, backed by Alibaba Group.
While China's wider car market has cooled, its NEV market is growing rapidly. NEV sales rose 37.6 percent in November compared with the same month last year, and surged 68 percent to 1.03 million vehicles in January-November, the country's top auto industry association said this month.
NIO Inc, which raised $1 billion in one of the biggest U.S. IPOs last year by a Chinese firm, said last month it had delivered 9,726 of its ES8 electric sport-utility vehicles (SUVs) as of Dec. 15, almost reaching its own target of 10,000 vehicles by 2018-end.
Former BMW and Nissan Motor executives co-founded Chinese electric-car venture Future Mobility Corp (FMC), which in September 2017 named its brand "Byton". FMC, the parent company, plans to launch the vehicles in the United States and Europe soon after starting sales at home in 2019.
FMC last June placed an order to German supplier Duerr for a paint shop capable of handling 150,000 cars per year, in China's eastern city of Nanjing, one of Byton's headquarters.
Byton also opened a North American headquarters in Silicon Valley in December 2017. It announced it was working with Aurora, U.S. autonomous driving company co-founded by Chris Urumson, the former head of Google's self-driving cars programme.
(Additional reporting by Norihiko Shirouzu in BEIJING; Editing by Jacqueline Wong)
By Kane Wu and Julie Zhu