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Volvo and Geely to merge engine production efforts into new company

Volvo and Geely to merge engine production efforts into new company The 2019 Volvo XC60Volvo

Volvo Cars and Chinas 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 gasoline-powered engines, compared with 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, Volvo CEO Hakan Samuelsson said, save for Geely-owned Lotus sports cars.

Global automakers are walking a financial tightrope as they spend billions to develop electric vehicles that IHS Markit forecasts will grow from 2 per cent to 12 per cent of new-car production by 2030. At the same time, slowing sales, trade wars and tightening emissions regulations in China and Europe are pinching profits.

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.

Its 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.

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.

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