Hakan Samuelsson, Volvo Cars president and CEO, said merging the combustion engine operations of Volvo and Geely will save the company money.

With the high cost of developing electric and autonomous vehicles hanging over the industry, two longtime European rivals are considering combining forces to develop combustion engines that will be used in the future, according reports from Germany.

Geely, the Chinese automobile group that owns Volvo Cars and a major investor in Daimler AG, apparently is serving as matchmaker in the effort to share and limit the costs of developing new IC engines that could be used by both companies, Automobilwoche weekly reported on Sunday, citing unnamed company sources.

The magazine cited a Volvo manager as saying there were initial talks with Daimler, but no concrete plans, while a company spokesman said it was too early to talk about firm projects, although it was not excluding anybody.

(Volvo, Geely merge internal combustion engine development, production)

A Daimler spokesman told Reuters the company’s cooperation with Geely, which owns a 10% stake in the German carmaker, was developing in a positive way, but declined to comment further.

Reuters noted that local tariffs, accelerated by a trade war between China and the United States, as well as higher investment requirements for electric and autonomous vehicles, are forcing carmakers to seek new ways to cut and share costs.

In October, Volvo said it would merge its engine development and manufacturing assets with those of Geely, creating a division to supply in-house brands and also potentially others with next-generation combustion and hybrid engines.

Geely Chairman Li Shufu expressed an interest in potential partnerships with Daimler when acquiring double-digit interest in the company.

(Geely gets Smart with Daimler)

Automobilwoche said this new division would start operating by the end of March, which could be a possible starting point for cooperation with Daimler, while a further step could be a partnership to develop electric powertrains.

Geely and Daimler have said they plan to build the next generation of Smart electric cars in China through a joint venture and the two companies are also cooperating on a premium ride-hailing service in China.

Volvo already supplies engines to some Geely-branded vehicles, sharing technology through Geely’s Lynk brand. Both companies share and develop common vehicle platforms.

(Geely’s Li Shufu says partnerships key to auto success)

Working with Geely on this partnership is not at all surprising. When the company took a double-digit stake in Daimler, this was one of the many potential benefits that were cited as a reason for the move by Geely.

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