Although Geely already owns the Swedish automaker, Volvo and Geely have operated as separate companies. A full merger would create the first Chinese automaker with true global reach. It would also save money in production costs, parts purchases as well as research and development expenses.
By fully merging a Chinese and a European automaker with significant US operations, it would be a significant step for a Chinese automaker away from what has become a troubled domestic market. It could even hasten exports of cars from China to Europe and the United States, which has been a relative trickle until now.
A merger could also allow the combined Geely-Volvo to raise funds from foreign investors in a way Chinese automakers have not done before now. Geely said Monday it anticipated shares of the combined company would be listed in both Hong Kong and Stockholm.
Shares of Geely shot up 10% in early Hong Kong trading Tuesday, then retreated to close up nearly 6%.
"The intention would be to preserve the distinct identity of each of the brands Geely, Volvo, Lynk & Co and Polestar," said Geely, in a statement.
Lynk & Co. and Polestar are new brands created as joint ventures between Volvo and Geely. Their vehicles were designed by Volvo and are built and sold in China. They are expected to be sold in Europe and North America soon.