Volvo Cars and Geely scrap merger plans

Volvo Cars and Geely Auto have cancelled plans to merge and will instead pool electric vehicle technology and software development in efforts to drive savings across the two companies.

The tie-up plans, announced last February, were put on ice later in the year as Geely Auto, which is quoted in Hong Kong, pursued a separate listing in Shanghai that prevented it from merging during the sale process.

The two businesses, owned by Geely holding company, said on Wednesday they will combine several functions while remaining separate, including joint software development and procurement.

“This has all the benefits of the financial merger but does not give the disadvantages,” Volvo chief executive Hakan Samuelsson told the Financial Times.

He said a full combination of the companies would have “slowed down” the businesses as they race to develop electric vehicles and self-driving systems.

“We really would like to avoid any type of loss of momentum when people start to talk more about internal power issues,” he said.

“We have learned that traditional hardware synergies are not as important as maintaining speed on the top line.”

The move comes three years after Volvo scrapped plans for an initial public offering over concerns the company could not achieve the lofty valuation desired by its owner, Geely’s chairman Li Shufu.

Shufu said on Wednesday there are “significant benefits from deeper partnerships and alliances while maintaining independence”.

He added: “We are encouraged by the potential synergies and growth opportunities created by this collaboration, which will create two even stronger globally competitive companies.”

An Conghui, president and chief executive of Geely Auto, said the move “will enable Geely Auto to accelerate its global expansion, to capitalise on our strengths in China and develop a new generation of world class new energy vehicles.”

Samuelsson said the company today has “no ambitions” to be a listed business, which had been one of the driving forces of the intended Geely merger, but would still be likely to tap the capital markets to fund its electric efforts in the future.

The Swedish carmaker wants half of its sales to be electric by 2025, and may even stop selling any vehicles with combustion engines by the end of the decade, Sameulsson told an FT summit last year.

Under the agreement announced on Wednesday, Volvo and Geely will jointly develop the next electric car architectures, which may also be used by other brands in the Geely family including Britain’s Lotus, Malaysia’s Proton, and the Lynk & Co brand that is co-owned by Volvo and Geely.

The two groups already announced plans to hive off their traditional engine units into one combined company, in order to focus on developing electric vehicles.

Each company will lead an area of technical expertise, with Volvo focusing on electrification for larger and premium vehicles, while Geely will run the internal combustion engine business and develop hybrids.

The group will share procurement, but the co-operation is focused on new technology rather than industrial synergies a traditional merger would present, Sameulsson said. 

“It is more important that we have the same software and battery pack than the same rear axle.”