Byton last year raised $240 million in a round of funding from investors including Chinese retailer Suning and Fullshare Holdings.
Volkswagen will also jointly buy some new cars with Didi to allow the Chinese company to expand its fleet.
Didi says it wants to establish "open platforms" whereby it could share its customer and operational skills with automakers or parts suppliers.
Byton is interested in gaining access to FAW’s supply chains for automotive components such as EV batteries.
The size of the stake remains unclear but is likely to be below 3%.
A stake of that size would be worth $4.5 billion at current market prices.
This will be BMW's second JV in China. It has a joint venture with local carmaker Brilliance China Automotive Holdings.
New JV will be owned 25% each by Nissan and Renault and 50% by Dongfeng.
Geely Automobile Holdings Ltd too said on Wednesday it was not planning a bid for FCA.
Most of the money will be used for product development.
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