Geely Automobile and Volvo Cars have canceled their merger and will instead pool their electric vehicle technology and software development know-how in an effort to drive savings across both companies.

The two businesses will now combine several functions, including joint software development and procurement, while remaining separate legal entities.

The plan, announced last February, was shelved later in the year, as Geely Automobile that is listed in Hong Kong pursued a separate listing in Shanghai, which prevented it from merging during the sale process.

Geely Automobile scrapped the full merger with Volvo for five reasons. First, Volvo's global sales shrank due to the COVID-19 pandemic and a combined listing might not be able to achieve the valuation the company desired.

Second, full integration will be time-consuming and costly.

Third, there might also be restrictive tech IP transfer terms in the 2010 sales agreement between Ford and Geely. Ford sold Volvo to Geely in 2010 for $1.8 billion – significantly lower than its original purchase price by Ford.

Fourth, Zhejiang Geely Holding Group, Geely Automobile's parent, has other brands including British sportscar maker Lotus, Malaysia's Proton, and London black cab EV specialist LEVC. The new business plan, if successful, could empower other brands within the company.

Finally, Volvo's automobiles had – and still have – a reputable brand during the combustion engine era, but they are not tech leaders in autonomous driving nor the electric vehicle market, so Geely could still maintain its flexibility to choose other partners with closer ties later, while Volvo can also keep its option for a separate listing.

A business cooperation plan without a full merger looks to be the sensible choice, without much disadvantage. In the meantime, it shows that a cross-border post-merger integration is challenging for most Chinese companies.

Li Shufu, the chairman of Zhejiang Geely Holding Group, is very good at global partnerships. Entrepreneurs like Li Shufu were ahead of the curve to internationalize their business, but full integration remains a distant goal.

(Cover image via CGTN)