Volvo Cars and Zhejiang Geely Holding Group (ZGH) have announced plans to merge their existing internal combustion engine (ICE) operations into a standalone business. The move will also benefit the rest of the Geely empire too, with the likes of Proton, Lynk & Co and Lotus all gaining access to a new supplier - the latter's SUV-shaped ambitious feels like a ideal fit for the new engines.
Global automakers are walking a financial tightrope as they spend billions to develop electric vehicles that are forecast to grow from 2 per cent to 12 per cent of new cars by 2030, according to IHS Markit.
By 2025, it expects half its global sales to be fully electric and the other half hybrid, supplied by the new unit.
Volvo said the move would clear the way for it to focus on development of battery-electric powertrains. "It's likely they would not have gotten the resources they need to maintain their high level of competency in that area".
"You can not be world champion on everything, so we don't want to risk losing out on electrification", Samuelsson said.
The plan will also help realise cost savings as the company aims to expand its volume even further. Technology sharing between both companies is already prevalent, and the new entity will consolidate the supply of combustion engines into one supplier.
Volvo says it believes the shift to full electrification will be a "gradual process" and, as such, there will be long term demand for hybrid drivetrains. It could also supply other vehicle manufacturers, though none have expressed interest yet, Volvo Chief Executive Officer Hakan Samuelsson said.
A new business unit will be created to support the merger, staffed by 3,000 employees from Volvo and 5,000 from Geely.
The new company will focus on developing next-generation engines, including engines in hybrid configurations, to sell back to Volvo and Geely, as well as Lotus, another Geely-owned brand which now sources its engines from Toyota. "That's what you do when you are dealing with a shrinking market", Samuelsson explained.