BEIJING Geely Automobile Holdings Ltd (0175.HK) said on Friday that its parent and Volvo have signed a technology transfer deal that will allow the Chinese maker of low-cost cars to enrich its product portfolio and boost its competitiveness.
The announcement confirmed a Reuters story earlier in the day that said Volvo would sign an agreement with its owner, Zhejiang Geely Holding Group.
"This is an initiative which is set to create additional value for both companies. It will support us in realizing the aspirations to make China our second home market," said Stefan Jacoby, president and CEO of Volvo.
The deal includes jointly developing electric vehicle and small-car technology, including plug-in vehicles, Geely said in a statement.
"It's a strategic imperative for us to try our best and unlock the synergies within the group, enhancing our different brands," said Li Shufu, chairman of Geely Holding Group.
Zhejiang Geely took over Volvo from Ford Motor Co (F.N) in August 2010, marking China's largest overseas auto acquisition and reflecting the country's rapid rise in the auto world.
The deal, however, raised some eyebrows, especially in Volvo's home country, fearing a Chinese takeover could tarnish Volvo's image as a long-established upscale brand.
To ease the concerns, Li has stated publicly that Volvo's independence would be maintained.
"Geely is Geely, Volvo is Volvo," Li has said on several occasions.
Even though technology sharing between a parent and its subsidiary is not unusual, industry observers warned about operational difficulties in executing the plan.
"Geely is the obvious beneficiary of the deal. But they should be extremely careful in executing the sharing as it could tarnish Volvo's image as a premier brand," said Yale Zhang, president of consultancy Automotive Foresight (Shanghai) Co Ltd.
Volvo is waiting for Chinese government approval to build a greenfield manufacturing plant in Chengdu in southwest China. The plant would also produce a new brand jointly developed by Volvo and Geely.
Geely's shares closed up 0.3 percent on Friday, lagging a 0.9 percent gain for the benchmark Hong Kong index .HSI.
(Additional reporting By Alison Leung in HONG KONG; Editing by Matt Driskill)