Volvo's Parent Reportedly Built a Skunkworks Company Used to Circumvent China's EV Battery Rules

Volvo's parent company Geely reportedly walked a thin line to sneak foreign developed batteries into China.

Volvo

China is extremely strict when it comes to which companies are allowed to build and sell vehicles within its borders. In fact, even the well-established companies live by a certain set of unofficial guidelines on what components they can use in their vehicles, and where they can source them. But as The Wall Street Journal reports, Volvo and parent company Geely have reportedly been flirting with an ethical line that other companies dare not touch.

In the emerging market of electric automobiles sold in China, batteries are a hot topic. Automakers are continually looking for ways to improve upon battery technology as well as make existing tech more affordable to produce. However, this has been a continued growing pain for the "made in China" brands, as their hands are strongly pushed in the direction of other Chinese-owned companies so that they speed up the growth of the country's battery market—something which has been second to South Korea for some time.

Foreign batteries aren't exactly banned, but the use of them in Chinese-produced electric cars and hybrids is heavily discouraged. Company executives have reportedly been warned of this unofficial rule starting as early as 2016, noting that their companies would face heavy repercussions should they choose to source their batteries from a non-domestic source.

“We want to comply, and we have to comply,” an unnamed auto executive told the Journal. “There’s no other option.”

And so they complied. Large sums of money were said to have been spent in order to be compliant with the unofficial rule, driving up the price to manufacturer vehicles.

Volvo's parent company, Zhejiang Geely Holding Group Co. (more widely known as just "Geely"), had another idea. It formed Zhejiang Henguyan to produce batteries for electric cars and reportedly hired LG Chem to help set up its production lines. A Geely spokesperson confirmed last year that it had struck up a deal with LG Chem to license its battery technology, something which has allowed both Geely and Volvo to greatly reduce their production costs of EVs by channeling in South Korean battery technology to be manufactured by Chinese-owned company.

Volvo's CEO, Hakan Samuelsson, had previously acknowledged that the company's logistical advantage has allowed it to be one of the only flourishing foreign automotive manufacturers in China.

“This is our second home,” Samuelsson told WSJ in 2017. “We are the only [foreign automotive] company that really has control over business."

The fight for supremacy in electric cars is rapidly accelerating to become a multi-manufacturer race. As automakers try to beat each other in production speed, bottom-dollar costs, and everything in between, EVs will undoubtedly become a cheaper commodity to produce as the result of fierce competition. Eventually, the cost savings will be passed on to the consumer, and more electrified autos will work their way to a street near you. With sly tactics like what Geely and Volvo have achieved, it gives an extra leg-up in an already booming market.