The report says the deal will likely see Daihatsu supplying about 50,000 engines of 1,000cc or so capacity from Daihatsu's engine plant in Indonesia to Dongfeng, beginning later this year.
Nikkei did not reveal the source of the news but says Daihatsu and Dongfeng are in the final stages of negotiations.
The engine supply deal was driven by Dongfeng's need to procure cleaner emissions engines that would meet upcoming exhaust emission regulations in China. The Chinese government is expected to continue to tighten regulations on vehicular emissions, and by 2020, China's exhaust emission regulations will be on par with those in Japan and Europe.
Starting this year, Daihatsu's newly extended engine production line in Karawang, West Java, will begin production. The new production line has an additional production capacity of 200,000 engines a year, raising the engine plant's total output to 530,000 engines a year.
The plant currently supplies engines to Daihatsu-made Toyota models (Avanza and Agya) as well as China's FAW Group, who is also a local partner for parent company Toyota's operations in China. Daihatsu's contract with FAW is worth 100,000 engines per year.