China's Geely Automobile and Volvo Cars said on Monday they are considering combining their businesses to accelerate financial and technological efficiencies between the two automakers.
"A combination of the two companies would result in a strong global group," Li Shufu, chairman of Geely Holding Group, said in a news release on Monday.
The deal would unify the bulk of Li’s growing stable of automotive brands and create a company worth some $30 billion, on par with Ford Motor Co.
The new company’s combined annual shipments would surpass 2 million, based on data from 2019, rivaling shipments of BMW-branded cars.
The combination of two companies would have brands including Volvo, Geely, Lynk & CO and Polestar. Geely's new energy brand Geometry will also be included.
Zhejiang Geely Holding Group, Geely Automobile's parent group, acquired Volvo from Ford Motor in 2010.
Geely Holding has a number of other investments including a 9.7 per cent stake in Daimler acquired in 2018, a 49.9 per cent stake in Proton in 2017 and majority stake in British sport car brand Lotus.
Kerrigan Advisors’ proprietary annual OEM Survey of over 100 executives reveals that the majority of respondents are worried about the financial impact of Chinese automakers’ growing global market share, and most expect that the EV transition to be slower than expected. The survey also queried executives on their outlooks for dealership valuations and profitability, as well as their expectations for the future of dealer networks and facility requirements.
The group is trying to consolidate assets as the industry adjusts to tougher emissions rules and the rise in demand electric cars.
In October, Volvo said it would merge its engine development and manufacturing assets with those of Geely, creating a division to supply Lotus, the U.K. van maker LEVC, Lynk and Proton, and also potential rivals with next-generation combustion and hybrid engines.
Geely Automobile sold 1.36 million cars in 2019 and aims to sell 1.4 million cars this year. Volvo sold just over 700,000 cars last year.
In 2019, Volvo Canada sold 10,155 vehicles, a gain of 10 per cent from a year earlier. It was the first time since 2005 that the brand’s annual sales topped 10,000 units in Canada.
Canada has been crucial to the rollout of Volvo’s Polestar electric vehicle brand. In October, Polestar selected a Montreal retailer for its first North American store, and it has plans to open locations in Toronto and Vancouver.
The combined Geely Automobile-Volvo business would be listed in Stockholm as well as in Hong Kong, where Geely Automobile trades now.
A joint listing with Geely Automobile would mark a creative way to list Volvo Cars, which delayed plans for an IPO in 2018, citing the impact of trade tensions on market appetite.
Geely Automotive has a current market value of about $16 billion in Hong Kong, while Volvo targeted a range of $16 billion to $30 billion before it dropped its IPO plans, people familiar with the matter said at the time. Investors were only willing to pay between $12 billion and $18 billion, those people said.
Volvo was started in 1926 as a project within ball-bearing maker SKF AB, which wanted to show how useful its products could be in cars. The fledgling company was listed in Stockholm in 1935 before expanding to become a sprawling conglomerate that also made trucks and construction equipment, with stakes in pharmaceutical companies and breweries.
After a failed attempt at merging with France’s Renault, the Volvo group sold the passenger-car business to Ford in 1999 to focus on making trucks and buses. Geely took over the business from Ford in the wake of the financial crisis just over a decade later.
Under Zhejiang Geely Holding, Volvo has seen a resurgence of the brand led by sales of the popular utility vehicles that made up more than half of its sales last year. Deliveries in China have risen fivefold under Li’s ownership, and the company set up three assembly plants and an engine unit in the country.
Geely, which has been the top-selling Chinese car brand for three consecutive years, has sought to move upmarket through closer cooperation with Volvo.
Reuters and Bloomberg contributed to this report.
