Volvo Cars and China’s Geely plan to merge their combustion engine operations, forming an independent new business unit that could also supply other car manufacturers.

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Source: Volvo Cars

Volvo plans to show an electric version of its XC40 compact SUV to the public this month. It will be the first fully electric model built by the Swedish premium car brand

Volvo Cars, which is part of the Geely Group, said the move will allow it to focus on the electric motors it expects to power half of all cars sold by 2025.

Geely is looking to build an in-house engine division to build powertrains for Volvo as well as for Proton, Lotus, LEVC and Lynk & Co, other group brands.

The new business unit will develop both next-generation combustion engines as well as hybrid powertrains. Hybrids, in particular, are expected to power Volvo-brand cars that won’t be fully electric for a while.

“Hybrid cars need the best internal combustion engines,” Volvo CEO Hakan Samuelsson said in a press release. “This new unit will have the resources, scale and expertise to develop these powertrains cost efficiently.”

Volvo Cars has in the past two years rolled out an aggressive electrification strategy. The Swedish brand announced in the summer of 2017 that all of its new models would have an electric motor on board starting in 2019. Volvo plans to show its first fully electric model, the XC40 compact SUV, to the public this month.

Since Geely acquired Volvo Cars from Ford in 2010, the Swedish brand and Geely Auto have been exploring ways to cooperate. After 10 years, there are now manufacturing cooperations in China and the two will be sharing platforms going forward.

Volvo said the new engine business unit “would represent a significant industrial collaboration between Volvo Cars and Geely with substantial operational, industrial and financial synergies.”

It will employ around 3,000 staff that will come from Volvo and about 5,000 from Geely.

Detailed plans for the new venture still need to be worked out, but Volvo said that a stand-alone engine business could also supply other car manufacturers. That would provide “possible growth opportunities,” it said.