Volvo and Geely to merge engine operations in electric car push

Tuesday, 8 October 2019

An engine deal will see Volvo switching its priorities towards developing electric powertrains and platforms. Its first EV is an electric version of the XC40 small SUV.

Volvo Cars and China's Geely plan to merge their engine operations into a standalone company, a step the Swedish automaker says will cut costs as it shifts to a fully-electrified lineup.

The combined unit would supply two million diesel and petrol-powered engines, versus the 600,000 Volvo produces today, giving the two companies more scale to reduce material costs. It could also supply other car manufacturers, though none have expressed interest yet, said Volvo Chief Executive Officer Hakan Samuelsson.

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. At the same time, slowing auto sales, trade wars and tightening emissions regulations in China and Europe are pinching profits.

The new standalone company will make engines for Volvo, Geely Auto, Proton, Lotus, LEVC and Lynk & Co.

Forming a standalone supplier will free up Volvo to focus on electric powertrains and platforms in-house without starving its internal combustion engine business of resources, Samuelsson said.

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Volvo Chief Executive Officer Hakan Samuelsson says Volvo doesn't want to risk losing out on electrification

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Geely says that the engines will also be made available to other manufacturers.

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* China's Geely cars think big with Volvo makeover**

'It's not like the combustion engine is going to be a growing business,' he said in a phone interview. 'The right thing to do is to consolidate and seek synergies. And the earlier you do that, the stronger you will be.'

He hopes to bring the planned merger before Volvo's board for approval next year.

Volvo wants half of its global sales fully electric by 2025, and for the remainder to run on engines for petrol-electric hybrids supplied by the new unit formed with Geely. The carmaker sold more than 355,000 vehicles globally in the first half of 2019, a 2.5 per cent gain over last year. It will start production next year of the brand's first fully electric car, a battery-powered version of its XC40 compact crossover.

Samuelsson embarked on 2 billion kronor (NZ$321 million) of cost cuts in July after announcing operating profit fell 30 per cent in the first half. Geely's profit plunged 40 per cent in the first half, dragged down by the first slump in Chinese auto sales in a decade. Both Volvo and Geely are owned by Zhejiang Geely Holdings of China.

Volvo said no jobs will be eliminated in forming the new supplier, which will employ about 3,000 Volvo workers and 5,000 from Geely, including people in engineering, procurement, manufacturing, information technology and finance.

For Geely, the planned new company means technologically advanced and efficient combustion engines and hybrid powertrains would be available to its Geely Auto, Proton, Lotus, LEVC and Lynk & Co. brands. The planned new stand-alone business can also supply third-party manufacturers, providing possible growth opportunities.

'You cannot be world champion on everything, so we don't want to risk losing out on electrification,' Samuelsson said.