By Norihiko Shirouzu
BEIJING (Reuters) - Sweden's Volvo Cars, a unit of Zhejiang Geely Holding Group, has agreed to make some engines available for Geely-branded vehicles, sources said, deepening ties between the carmakers who already share technology through third brand Lynk & Co.
Three people close to Geely [GEELY.UL] and Volvo said the first Volvo-powered Geely model was expected to hit the market as early as late next year as a 2019 model year car.
The car will be equipped with a new 1.5-liter turbo charged gasoline engine which Volvo has been developing for smaller cars, the knowledgeable individuals said.
Volvo is expected to share a 2.0-liter turbo-charged engine at a later date and will also allow Geely-branded cars to use a common vehicle platform the two automakers developed jointly for Volvo and Lynk & Co.
"The terms of the recently announced joint venture between Volvo Cars and Geely Group mean that existing and future technologies can be shared by Volvo, Geely Auto and Lynk & Co, under licence agreements," a Volvo spokesman said.
Analysts questioned Geely's ability to absorb the best of Volvo when it acquired the automaker from Ford Motor Co (N:F) almost seven years ago. Yet Geely has been working progressively to improve its technology with Volvo know-how.
Better designed cars following its 2010 purchase of Volvo – such as its GC9 sedan and Boyue sport-utility vehicle – have helped lift Geely's fortunes. Its China sales grew 50 percent last year to 766,000 vehicles and it expects sales to climb well above the 1 million mark this year.
Ultimately, it aspires to sell more outside China.
Earlier this year, Geely bought 49.9 percent of struggling Malaysian carmaker Proton from conglomerate DRB-HICOM Bhd (KL:DRBM). Geely officials have told Reuters the Hangzhou automaker is planning to improve Proton cars by sharing Geely and Volvo technologies.
Analysts have said one big risk for Volvo, as it combines more with its parent, is the dilution of Volvo’s brand image by sharing its technology and know-how with a Chinese auto upstart.
Volvo Chief Executive Hakan Samuelsson said the key was to differentiate the brand sufficiently - even if the two groups share more technology. For Volvo, that is about more and better safety equipment, among other aspects.
"The progress Geely has been able to make in improving products and brand image over the past several years makes me feel more confident they can execute this process successfully," Yale Zhang, head of Shanghai-based consultancy Automotive Foresight, said.
Last month Geely and Volvo said they plan to go beyond Lynk & Co and create a joint venture to share technology, such as vehicle architecture and engines via cross licensing arrangements managed by that joint venture.
Samuelsson told Reuters last month the deal would provide Volvo with greater development resources and efficiency in purchasing parts. It also should help Volvo speed up introduction of new technology in areas such as components for electric vehicles, he said.