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Forbes
Forbes
World
Pamela Ambler, Forbes Staff

Volvo & Geely: The Unlikely Marriage Of Swedish Tech And Chinese Manufacturing Might That Earned Record Profits

Li Shufu, Chairman of Zhejiang Geely Holdings, left, shakes hands with Hakan Samuelsson, CEO of Volvo Cars, right, in front of a new S90 Volvo car (AP Photo)

Living on the edge, pushing boundaries, and testing endurance–these are the emotional trials that Volvo wants Chinese consumers to experience. And the Volvo Ocean Race, the sailing world’s longest endurance race, is the perfect vehicle for the message. In its first ever stopover in Hong Kong for its 45,000 nautical mile lap around the globe, Volvo has blanketed the former site of Kai Tak airport with its latest models of cars, a virtual reality test track with Scandinavian scenery, and learning labs about both the vehicles and the race boats.

How they got from roadway to waterway–an unlikely link for a Swedish car maker that was also rescued by an unlikely Chinese buyer seven years ago. At the time, Volvo Cars was owned by Ford Motors, which was suffocating under the financial crisis and aftermath of the “cash for clunkers” experiment in 2009–a failed car allowance rebate system. The U.S. federal program had intended to provide economic incentive for consumers to purchase more fuel-efficient vehicles, trading in their gas guzzlers. However, what was intended to provide stimulus to auto sales, quickly turned into a cash drain on Uncle Sam.

Industry consolidation

With Ford Motor at the brink of ruin, CEO Alan Mulally began divesting assets including Jaguar, Land Rover, Aston Martin, Volvo and reduced its stake in Japan’s Mazda. Volvo Cars quickly found itself sold for $1.8 billion to the highest bidder–billionaire Li Shufu–in the largest overseas acquisition by a Chinese automaker. “Our evolution into a global company, that would not have been possible without the support from Geely,” says CEO Hakan Samuelsson. “They have been a very good owner for the company, quite opposite of what everyone thought at the beginning.”

Read more: If Any Chinese Car Company Will Take On The World, It’s This One

Li was and remains the chairman of Zhejiang Geely, the first non-state owned carmaker when it launched in 1997. Geely is the Chinese word for lucky, but its early renditions were anything but. Li single handedly scrapped three batches of poorly designed and built models before finally arriving at one that met his expectations. It wasn’t until 2002 that he released the four-door subcompact sedan–Ziyoujian–known in English as “Freedom Ship” or “Free Cruiser.” It was the first Chinese automobile ever to appear at an American auto show, but was actually designed by South Korea’s Daewoo Motor–a sign of things to come for a brand that would ultimately recognize the value in outside partnerships.

Li Shufu, chairman of Zhejiang Geely Holdings, left, Hakan Samuelsson, CEO of Volvo Cars (AP Photo)

It was around this time that Li said he started thinking about owning Volvo, his personal favorite car maker, one day. “It’s a very good match because there is respect from both sides,” Samuelsson describes the relationship. “Li is a passionate owner, not that interested in quarterly figures, but the long term strategy in our cars.” 

Safety first

Karin Backlund, the commercial director of the Volvo Ocean Race who has been with the company since 1995, says heritage is at the core of everything they do. “The brand and the product has evolved immensely over the years, especially since Geely came in.” Even with three production car plants in China, and one in Charleston, South Carolina, the centenarian car group still does all its innovation and R&D in Gothenburg under extreme weather conditions. The aim is to produce the safest car that handles well under any roadside condition. The number one vision that the car maker has is a pledge to build a deathproof car by 2020. The commitment is that no one should be seriously injured or killed in a new Volvo.

Safety features are especially important to Chinese consumers, and Volvo plans to achieve a fatality-free car with safety tech from auto steering, adaptive cruise control, to pedestrian and animal detection for collision warnings and avoidance. Their ultimate goal is to build an autonomous vehicle with active sensors which they say, will be the pinnacle in crash-prevention.

More on Forbes: Why Chinese Car Buyers Are Willing To Pay More Than Consumers In Any Other Country

A deal announced last year by Uber has the car-hailing app committed to buying 24,000 self-driving cars from Volvo, to make robo taxis a reality. Afterall, Samuelsson points out, ”Ninety percent of accidents are human caused.”

This is a self driving Volvo Uber on display at the companies’ Advanced Technologies Center (AP Photo/Gene J. Puskar)

Electric avenue

Putting a million electrified vehicles on the road by 2025 is another initiative that Volvo has. All its car models launched after 2019 will be either fully electric, or hybrid. The decision which Samuelsson says was a reaction to customer demand makes the auto giant the first major brand to end production of pure combustion engines as we know it.

Jointly, Volvo and its parent have put in $760 million into Polestar, in which Samuelsson describes as, “a new high performance electric brand with very tight connections to China.” The EVs will be produced out of its plant in Chengdu and is positioned to rival Tesla in the premium battery segment.

Prime Minister David Cameron sits in a London black cab with Geely Chairman Li Shufu (Stefan Rousseau/PA Images via Getty Images)

In what can be seen as synergy between Geely’s other investment in London Taxi International, the group was relaunched as the London Electric Vehicle after it was lifted out of bankruptcy five years ago. The pair is developing plug-in electric black cabs from a factory in Coventry, U.K. where delivery vans are also being built.

New acquisition

In a further sign of Li’s appetite to fully electrify, Geely announced the purchase of a stake worth $3 billion in Swedish truck and bus maker Volvo AB from Cevian Capital late last year. Volvo AB has been operating independently from Volvo Cars since its time with Ford, but has collaborated with German electric giant Siemens to go head to head against Tesla on building e-trucks. Many are viewing this move as the first step to reuniting the brand since it was broken up in 1999. 

Visitors look at a Volvo AB FMX truck (Jochen Eckel/Bloomberg)

Record sales 
Following a refocus of Volvo’s product line under Geely, the car maker revived sales in Europe, the U.S., and China. The brand has since moved upmarket to compete against the likes of Daimler’s Mercedes-Benz and BMW. On the dubious partnership that many had questioned, Samuelsson says, “the success formula is to avoid the temptation of micromanagement.”

Related: Geely Shares Soar To Record, China Automaker Now Worth More Than Half Of Ford

In 2017, sales rose 7% year-one-year to a new record high. All regions contributed to the half a million units sold, with performance in the Asia Pacific region ballooning by more than 20% on the back of record sales in China–Volvo’s biggest market now.

“Our company is almost more Swedish with a Chinese owner… and our Chinese owner loves that because they already have a Chinese brand,” says Samuelsson.

 

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