Volvo Cars and Chinese owner Geely intend to combine their internal combustion engine (ICE) activities to form a stand-alone business and become a new global supplier. The unit will develop next-generation combustion engines and hybrid powertrains.

While Volvo foresees the powertrain future as electric, the Swedish premium car maker believes the automotive industry’s electrification will be a gradual process, meaning there will be “significant ongoing demand for efficient hybrid powertrains alongside fully electric offerings.”

Hakan Samuelsson, Volvo Cars’ president and CEO added: “Hybrid cars need the best internal combustion engines. This new unit will have the resources, scale and expertise to develop these powertrains cost efficiently.”

The proposed new business will clear the way for Volvo Cars to focus on development of its all-electric range of cars. The company expects half of its global sales to be fully electric by the middle of the next decade, with the other half hybrid, supplied by the new unit.

For Geely, the planned new entity means ICEs and hybrid powertrains will be available to the Geely Auto, Proton, Lotus, LEVC and Lynk & Co brands. 

The planned, stand-alone business will represent significant collaboration between Volvo Cars and Geely, with substantial operational, industrial and financial synergies, said Volvo. The new business could also supply third-party manufacturers, providing possible growth opportunities, the OEM added.

Volvo and Geely are carving out their ICE operations into new units within their respective organisations as a first step towards a merger. Detailed plans are under development and subject to union negotiations, and board and relevant regulatory approvals.

However it is estimated the new company will employ 3,000 workers from Volvo Cars and around 5,000 from Geely from the research and development, procurement, manufacturing, IT, finance and other functions. “No reductions in the workforce are anticipated,” said Volvo.