Volvo is merging its combustion engine production operation with Chinese owner Geely so it can focus solely on building all-electric powertrains.
The new standalone business would supply next-generation petrol, diesel and hybrid powertrains to all Geely brands, which also include Proton, Lotus, London Electric Vehicle Company and Lynk & Co.
It is hoped this will also open opportunities to supply powertrains to third-party manufacturers.
The Swedish premium car maker expects half of its global sales to be all-electric by about 2025, with the other half hybrid powertrains sourced from the new operation.
The firms say that no jobs would be lost in the merger, which will employ about 3,000 people from Volvo and 5,000 from Geely.
Hakan Samuelsson, Volvo Cars’ president and chief executive, said: “Hybrid cars need the best internal combustion engines.
“This new unit will have the resources and expertise to develop these powertrains cost efficiently.”
Volvo has been heavily investing in electrification technology. In September it introduced a plug-in version of the XC40, its entry-level SUV, becoming the first manufacturer to offer a plug-in version of every car in its range.
It also recently confirmed its first all-electric model would soon be introduced to the XC40 range.