The news comes as Ford CEO Jim Hackett and Executive Chairman Bill Ford Jr. wrap a week-long trip to the country. This new deal makes it likely that Ford vehicles will be prominently displayed in these vending machines.
And while Ford benefits from Alibaba's retail and digital experience, Alibaba can pull from Ford's experience running a global company as the Chinese company tries to expand. Alibaba is often referred to as China's Amazon.
The source said the proposal could mean that cars bought online are delivered to buyers by franchised Ford retail stores and would be maintained and repaired by them.
The cars could come directly from Ford or from its dealer network - the details are still being worked out, Reuters reported.
Alibaba says that consumers can use their phones to browse the cars in the garage, before choosing to either test drive it or buy immediately. This model bypasses the traditional dealership, but Ford believes dealers would agree to this direct selling model because they still get to service the cars, the source explained.
The move, though, could be potentially problematic for dealers, some industry experts said. "But if this format gained steam, it would definitely impact dealers", according to Yale Zhang, head of Shanghai-based consultancy Automotive Foresight.
The danger is that the dealers lose out not only on a lot of vehicle sales but also the potentially lucrative auto financing aspect of their traditional business. The direct sales model couldn't work in the USA due to a strong auto dealer network with a decent amount of political power.
Online auto sales volumes are now limited in China because vehicle buyers want to be able to see, touch and drive cars before buying them, said Zhang. Getting a test drive via the internet could change that, though.
Ford's China sales have been sluggish in recent months in part because it has failed to catch on to rapidly changing trends in the marketplace, including the rise of entry-level cars popular in smaller and lesser-known cities, where demand is booming.
China is the world's largest auto market, with about 23 million vehicles sold in the first 10 months of the year.