Geely and Volvo to launch powertrain venture after merger scrapped

BEIJING/STOCKHOLM (Reuters) - China’s Geely Automobile and its Swedish sister company Volvo Cars will abandon merger plans but launch a new entity to combine their powertrain operations and expand cooperation on electric vehicles, the companies said.

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A year ago the two said they were planning to merge, giving Volvo access to public markets, as global automakers pursue alliances to respond better to the cost of the transition to electric cars, tougher emission rules and autonomous driving.

Geely and Volvo on Wednesday said they had decided to preserve their existing separate corporate structures after “a detailed review of combination options” but would launch a new company to combine their existing powertrain operations.

The new entity, expected to become operational this year, will provide engines, transmissions systems and petrol-electric hybrid systems for use by both companies and other automakers.

“I firmly believe that this is the best combination, the best way forward for our companies,” Volvo Cars Chief Executive Hakan Samuelsson told a joint news conference.

Asked if Volvo Cars would consider a stock market listing, he said there were currently no such plans.

The two companies will also focus on the development and sourcing of next-generation technologies, from connectivity and self-driving vehicles to car sharing and electrification, their statement added.

The companies did not disclose what savings they expected to make from the various collaborations.

Shares of Geely Auto rose more than 2% on Thursday.

“Overall, we see this solution as more of a cooperation than a merger as only the powertrain assets will be merged and thus below our expectation,” a Daiwa analyst wrote.

Geely Auto will also forge a partnership with Volvo’s sales network to help to boost growth for their jointly owned Lynk & Co car brand.

Last year Geely Auto sold 1.32 million cars while Volvo Cars sold 661,713 vehicles.

Geely Auto plans to raise 20 billion yuan ($2.93 billion) from a public share sale on Shanghai’s Nasdaq-style STAR Market, which Chief Executive Gui Shengyue said would be unaffected by the new collaboration with Volvo.

Hangzhou-based Zhejiang Geely Holding Group, Geely Automobile’s parent, bought Volvo Cars from Ford Motor Co in 2010. It also has stakes in Daimler AG and Malaysian carmaker Proton.

Geely President An Conghui said the company had plans to set up an independent entity for pure electric vehicles, confirming a Reuters report last week.

Reporting by Yilei Sun in Beijing and Helena Soderpalm in Stockholm; Editing by Edmund Blair; Editing by David Goodman