Volvo And Geely Team Up on Combustion Engine Operations

Volvo Cars announced it would merge its engine development and manufacturing assets with Geely. The firms will be creating a division to supply in-house brands Lotus, LEVC, Lynk, and Proton.

In addition, it will also have potential competitors with next-generation combustion and hybrid engines.

The union marks the latest example of an alliance in the engine manufacturing sector. This is after tighter emissions rules hike development costs at a time when the development of electric cars demands to question the long-term demand for gas consumers.

Meanwhile, rival Volkswagen has already cautioned its in-house suppliers to produce structures to combine the combustion engine assets.

Moreover, they are in the midst of ramping up mass production of electric cars.

On the flip side, Volvo is currently building 600,000 combustion engines. This is a number that upsurges to about 2 million when combined with Geely’s assets.

What did the Volvo CEO say?

In a news report, Volvo Chief Executive Hakan Samuelsson stated that the grouping would produce savings on components and development costs.

Gothenburg, a Sweden-based brand, will also be allowed to more distinctly focus its resources on forming and developing a range of entirely electrified premium cars.

In a phone interview, Samuelsson said, “As a general business, combustion engines are most probably not growing.”

He also added, “It is vital to consolidate and seek synergies. It is another step transforming our company in the direction of electrification.”

Volvo will drop diesel engines in total for the favor of focusing on hybrid and electric powertrains. It will require further investments in fuel injection, turbo charging, and brake recovery technologies.

Samuelsson also indicated that combining its operations with those of Chinese associates, Geely will support in achieving cost savings.

In another statement, “On a component level, I see considerable cost savings. Most important is the development point. The engineers will have the resources to take the next step in developing top-notch hybrid engines,” Samuelsson said.

Geely’s History in The Car Manufacturing Industry

Geely in August disclosed a 40% drop in net profit. The firm has mentioned a sharp slowdown in demand for cars.

Meanwhile, Volvo has rearranged its global production plans in an effort to lessen the impact of tariffs.

In 2010, Geely bought Volvo Cars from Ford Motor Co, allowing the Swedish brand to operate on an arms-length basis.

But in recent years, it has dug out the collaboration between the two car maker brands.

Volvo already supplies engines to some Geely-branded vehicles. The firm is sharing technology via Geely’s Lynk brand.

The two businesses share and develop common vehicle platforms.

Meanwhile, global tariffs accelerated through a trade war between China and the United States.

In addition, higher investment supplies for electric and autonomous vehicles are obliging carmakers to search for new ways to cut and share costs.

Volvo, in 2018, put off plans to seek a distinct stock market listing for the Swedish carmaker. The firm also blamed the ongoing trade tensions.

The constricting emission requirements in both Europe and China are also firming up the industrial logic for the combined Volvo’s and Geely’s operations.

Samuelsson stated, “The emissions requirements are getting tougher. China is catching up very quickly. The days when China had outdated technology are gone.”

What’s next?

The new combustion engines business will link 3,000 employees from Volvo Cars with 5,000 employees from Geely’s combustion engine operations.

It has also included research, development, procurement, manufacturing, IT, and finance functions, Volvo said.

Moreover, Volvo indicated that the formation of the stand-alone business would have an outcome in no job losses.

The new stand-alone supplier possibly will also train external rivals. These are the ones struggling to sustain tighter regulations.

“It can be an interesting alternative to third-party customers,” Samuelsson said.