How Li Shufu will weave an empire around Volvo, Geely

How Li Shufu will weave an empire around Volvo, Geely

SHANGHAI -- Shortly after Geely founder Li Shufu acquired Volvo Car Corp. in 2010, he pledged to maintain Volvo's independence so that the Swedish brand's image would not be tarnished.

But in private, he soon started pushing Volvo and Geely to work together.

Six years later, Li finally has revealed his plan to build a global business empire on the foundation of the two car companies. And the key to that plan is the integration of Volvo and Geely.

The step-by-step integration began with r&d. In 2013, Li arranged for Volvo and Geely to jointly develop a platform for compact cars, dubbed the Compact Modular Architecture.

That platform, in turn, set the stage for a new premium brand -- Lynk & CO. The first Lynk model, a compact crossover dubbed 01, will hit the Chinese market late next year.

The next step of integration is joint production of vehicles. Last week, Volvo said its Luqiao assembly plant will build the Lynk 01 alongside the Volvo 40 series compact cars, which shares the same platform.

Lynk also is likely to share production lines with Volvo outside China. Last month, Geely unveiled a plan to launch the Lynk 01 in Europe and the United States in 2019.

As a brand, Lynk is positioned above Geely but below Volvo. That means Lynk models will be priced from 100,000 yuan to 150,000 yuan ($14,800 to $22,200). 

It doesn't make sense to ship vehicles with such a low price all the way from China to Europe or the United States. Transport costs and customs duties would make Lynk unprofitable.

So it seems likely that Li will arrange for Lynk models to be produced at Volvo's assembly plants in Europe and the United States.

And since Volvo's plant in Ghent, Belgium will build the Volvo 40 series, Lynk is likely to first have its 01 crossover produced there, too.

When Volvo completes construction of its assembly plant in South Carolina, it will initially produce Volvo's 60 and 90 series cars. 

These vehicles are based on Volvo's Scalable Platform Architecture, a larger platform than the CMA. So, Lynk's production in the U.S. will come at a later time than in Europe.

The third step toward integration will occur at the dealership level. Volvo and Lynk will share spare parts, service and repairs.

Last month, Geely announced that Lynk will have its own distribution network in Europe and the United States. However, Lynk's car owners will be invited to use Volvo dealerships or independent stores for repairs and spare parts.   

The three-step integration of Volvo and Geely will allow both companies to cut costs. 

For Lynk, it also brings an extra benefit: With access to Volvo technology, it has a good chance to beat other Chinese brands on the domestic market. 

To be sure, this strategy carries a potential risk for Volvo. By sharing production and services with Lynk, it runs the risk of muddying its brand.

But Li is not a risk-averse person. If he were afraid of taking risks, he wouldn't have bought Volvo in the first place.

From 2006 to 2008, Geely participated in the Frankfurt and Detroit auto shows, but didn't make any progress in cracking open the European and U.S. markets. 

Now, Li is determined to take to the global stage and compete on even terms with his global rivals.