Volvo Cars and Zhejiang Geely Holding Group plan to carve out their engine operations and merge them into a standalone unit.
The new business will develop next-generation hybrid powertrains and internal combustion engines for group brands such as Volvo, Lotus, Lynk & CO and Geely Auto as well as third parties, according to a release.
Volvo CEO Hakan Samuelsson said the move helps further accelerate the Swedish automaker’s push to have battery-driven cars account for half of its global sales by 2025.
“Volvo has taken another decisive step toward electrification by adjusting its business structure,” Samuelsson told Automotive News Europe.
The merger should provide lower-cost access to the powertrains that are expected to account for the other 50 percent of the company’s sales in the mid-2020s, he said.
"Because half of our cars will be hybrids [by 2025], we are securing the necessary resources to further develop [them],” Samuelsson said.
When asked how much Volvo stands to save Samuelsson said. "We haven't quantified it, but it will be huge. We are at least doubling the Volvo volume and that alone results in a significant cost savings."
Volvo sold more than 640,000 vehicles globally last year and aims to boost that volume to 800,000 by 2020.
With Volvo’s 2018 sales, Geely Group, which also includes U.K.-based taxi maker LEVC and Malaysian automaker Proton, had a worldwide volume of 2 million vehicles last year. “That will continue to grow rapidly in the future,” Samuelsson predicted.
Volvo says that what might be even more important than the merger's potential savings is that the move safeguards the company’s development resources, particularly engineers who would have seen their budgets squeezed as Volvo prioritizes full-electric drivetrains over hybrid and traditional powertrains.
“It’s likely they would not have gotten the resources they need to maintain their high level of competency in that area. With this change we avoid this,” Samuelsson said.
The new business is expected to be made up of approximately 3,000 employees from Volvo Cars and about 5,000 from Geely’s combustion engine operations.
The functions that will be part of the new company will include r&d, procurement, manufacturing, IT and finance.
No layoffs are anticipated because of the merger, Volvo said. Samuelsson said job losses might have been unavoidable if Volvo and Geely had waited to make the change.
“We have an advantage by doing this very fundamental restructuring very early because the market for combustion engines will not grow in the future," he said. “We are doing exactly the right thing, which is utilizing synergies. That's what you do when you are dealing with a shrinking market."
Volvo and Geely still need to negotiate the changes with their unions and get approvals from competition authorities to form the business, which will become a unit of the overall holding company.