Geely and Volvo Abort Merger, Will Set Up New Company to Combine Powertrain Units

Volvo Cars and Geely Auto have canceled plans for a full merger, instead announcing areas of cooperation on electrification, software development and autonomous-driving technology to lower costs.

The businesses, both owned by Zhejiang Geely Holding Group, will maintain their separate corporate structures while securing “new growth opportunities in their respective markets and meet evolving industry challenges through deeper cooperation,” the companies announced in a joint statement on Thursday.

Geely and Volvo will also move their powertrain activities to a new standalone company. The new entity, expected to become operational this year, will provide internal combustion engines, transmissions, and next-generation dual-motor hybrid systems for use by both parent companies as well as other automobile manufacturers.

The two will also share modular EV architectures, enhance cooperation in hardware and software, as well as share and jointly source batteries, electric motors and connectivity technology for autonomous driving (AD) solutions.

The collaboration will be overseen by a new governance model, supported by Geely Holding.

“A full merger would be too much internal focus and organizational disputes and power plays … The top-line growth, and that synergies in the future should be more focused on software,” Volvo Chief Executive Officer Hakan Samuelsson said in an interview with the Wall Street Journal.

The merger plans were announced last February, but were halted as Geely pursued a separate listing in Shanghai that prevented it from merging during the sale process.

The partnership “will enable Geely Auto to accelerate its global expansion, to capitalize on our strengths in China and develop a new generation of world-class new energy vehicles and associated mobility services,” said An Conghui, president and CEO of Geely Auto.

Leveraging Volvo Cars’ existing distribution and service network, the two companies will also collaborate on the global expansion of the jointly-owned Lynk & Co brand.

“Geely Holding sees significant benefits from deeper partnerships and alliances whilst maintaining independence,” Geely Holding Chairman and Founder Li Shufu said.

“We are encouraged by the potential synergies and growth opportunities created by this collaboration, which will create two even stronger globally competitive companies in the rapidly changing world of automotive technology and new mobility services,” he added.

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Zhejiang Geely Holding acquired Volvo from Ford Motor Co. for $1.8 billion in 2010 in the aftermath of the global financial crisis.

Lately, Hangzhou-based Geely has been engaging in a flurry of tie-ups in order to remain relevant in an industry that is undergoing a transformation to electrification, including with Chinese search engine and AI company Baidu Inc, Apple manufacturing partner Foxconn and tech giant Tencent.

It is also planning to set up a separate unit this year to explore product development, marketing and sales of electric cars, as well as to develop and manage models based on its open-source EV chassis base, according to Reuters.

Geely’s EV chassis base, announced in September and named Sustainable Experience Architecture (SEA), is an 18 billion yuan ($2.7 billion) EV-focused platform that relies on the use of aluminum to make vehicles lighter and a front steering system for steady driving.