Volvo Cars and Zhejiang Geely Holding Group (ZGH) have announced plans to merge their existing internal combustion engine (ICE) operations into a standalone business. The new entity will be responsible for the development of next-generation combustion engines and hybrid powertrains for ZGH brands such as Geely Auto, Proton, Lotus, London Electric Vehicle Company, Lynk & Co as well as interested third parties.

With this move, Volvo will be sharpen its focus on the development of fully-electric vehicles as part of the company’s ambition to prioritise sustainability at the core of its operations. The Swedish carmaker has previously stated that it expects half of its global sales to be made up of EVs, with the remainder being hybrids, by 2025.

Speaking to Automotive News Europe, Håkan Samuelsson, Volvo Cars’ president and CEO, said the creation of the new unit will put less pressure on Volvo’s engineers to continue developing combustion engines given the carmaker’s emphasis on EVs. “It’s likely they would not have gotten the resources they need to maintain their high level of competency in that area. With this change we avoid this,” Samuelsson said.

The plan will also help realise cost savings as the company aims to expand its volume even further. The company delivered 642,253 cars in 2018, and hopes to hit 800,000 units by 2020. Technology sharing between both companies is already prevalent, and the new entity will consolidate the supply of combustion engines into one supplier.

While Volvo is focused on EVs, the carmaker believes the electrification of the automotive industry will be a gradual process, and there will still be a demand for hybrid powertrains alongside fully-electric offerings. “Hybrid cars need the best internal combustion engines. This new unit will have the resources, scale and expertise to develop these powertrains cost efficiently,” said Samuelsson.

According to Volvo, the new business is expected to be made up of approximately 3,000 employees from Volvo and about 5,000 from Geely’s combustion engine operations, with no reductions in the workforce anticipated.

“We have an advantage by doing this very fundamental restructuring very early because the market for combustion engines will not grow in the future. We are doing exactly the right thing, which is utilizing synergies. That’s what you do when you are dealing with a shrinking market,” Samuelsson explained.