UPDATE 1-Fiat Chrysler and PSA confirm talks over potential tie-up

Italian-American Fiat Chrysler and Frances's Peugeot owner PSA are in talks over a potential tie-up aimed at creating one of the world's leading auto makers. After ditching a proposed merger with French rival Renault in June, Fiat Chrysler (FCA) confirmed on Wednesday its bid to pursue an alternative alliance at a time when car makers face huge investments for electrification, emission reduction, and autonomous driving technologies.

Yet if a combination of Peugeot and FCA succeeds in overcoming political, financial and governance hurdles, the new enterprise would still face substantial challenges. Global automakers face the prospect of a slowdown in global demand coinciding with the most dramatic technology changes in a century.

The two companies said they are in talks to combine in a deal that could create a $50 billion player, a source familiar with the matter said. PSA's supervisory board was due to meet on Wednesday to discuss the potential deal, another source close to the matter said. FCA said in a statement it had nothing more to add for the time being.

U.S.-traded shares in Fiat Chrysler rose sharply on Tuesday and ended up more than 7.5%.

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