Toyota has struggled for years to come up with a small EV that is both competitive on cost in China and doesn't compromise on comfort.
It turned to BYD's less bulky lithium-iron-phosphate (LFP) Blade batteries and its lower-cost engineering to help out.
Little known outside China at the time, BYD, or "Build Your Dreams", hit the headlines in 2008 when Warren Buffett bought a 10 percent stake and it has since become one of the biggest manufacturers of so-called new energy vehicles in the world.
Toyota's new EV will be slightly bigger than its compact Corolla, the world's best-selling car of all time. One source said think of it as "a Corolla with bigger back-seat section".
It will be unveiled as a concept car at the Beijing auto show in April and will then most likely be launched as the second model in Toyota's new bZ series of all-electric cars, even though it will only be on sale in China for now.
It will be pitched below premium EVs such as Tesla's Model Y or the Nio ES6 but above the ultra-cheap Hong Guang Mini EV, which starts at just $4,500 and is now China's best-selling electric vehicle.
It will sell for under 200,000 yuan ($30,000), aiming for a segment of the Chinese market Tesla is expected to target with a small car within the next two years.