It's increasingly rare for a company to stand alone in the automotive sector. Competition is growing fiercer every day , and new paradigms are forcing companies to invest huge sums of money in new technology. Added to this is a surge in production costs , which is reflected in vehicle prices. For this reason, conglomerates the size of the PSA Group or the FCA Group are going to take the step of establishing a merger of equals.
Volvo is one of the smallest companies currently operating in the sector. It's true that it's affiliated with Geely, which is also part of the Zhejiang Geely Holding Group's industrial network. However, they aren't fully integrated, resulting in duplicated costs in areas such as engine development . To reduce these costs, they raised the possibility months ago of merging their powertrain divisions and creating a dedicated company.
Volvo has grown exponentially since Geely took it over
This step was very interesting, as they wouldn't just be developing engines for both companies . They wanted to go a step further, offering their services to third-party companies looking for engines to power their models. However, Volvo's recent financial results have encouraged the management of both firms to take another step. They are considering a merger to become larger and more competitive.
According to several sources, including Reuters, Geely and Volvo need to increase their production volume . In Geely's case, this is to expand beyond the Chinese market. The Asian country is experiencing a critical situation due to a sharp drop in sales, compounded by the paralysis caused by the coronavirus. In Volvo's case, the Swedish automaker needs to strengthen its commitment to electric vehicles and requires more capital to do so.
Li Shufu, chairman of Geely Holding Group , has stated that
The merger of the two companies would result in a strong global group . We look forward to working with Hakan Samuelsson, President and CEO of Volvo Cars, to further explore this opportunity with the aim of strengthening the Group's synergies and maintaining the competitive advantage and integrity of each brand.
In light of this merger, several analysts agree that it is Li Shufu's first move to consolidate his automotive empire . When completed, if it comes to fruition, the new group will boast several top-tier brands. Volvo and Geely would be the stars, but we cannot forget Polestar , Lynk & Co , Proton , Geometry, Levc, or Lotus . Furthermore, it would have a significant stake in the German premium automaker Daimler AG.
Source – Reuters
