Volvo car to start production in China

Swedish auto maker Volvo has cleared a key hurdle towards winning full government approval to produce cars in China, according to two individuals close to the company.

Volvo Car Corp's leadership believes sales in China are likely to gain momentum when production begins in June at one of the two vehicle assembly factories Volvo and its parent, Zhejiang Geely Holding Group Co, plan to open soon in the southwestern Chinese city of Chengdu, the sources said.

That plant, which has been under construction and is already nearly completed, will have capacity to produce 125,000 cars a year.

Volvo is also seeking to open an engine factory in China.

They said the two vehicle assembly plants and the engine factory did not yet have approval from the State Council, though they said that was expected.

Volvo announced ambitious plans early in 2011 to use China's appetite for premium cars to help it nearly double its annual global sales to 800,000 cars by 2020, from 422,000 in 2012. That goal suffered an early setback when the company reported a first-half net loss in 2012 and its chief executive, Stefan Jacoby, departed soon thereafter.

An 11 percent slide Volvo reported for last year's vehicle sales in China also fanned concerns about the Swedish brand's ability to revive its business.

The sources said China's central government has given a green light for Geely and Volvo to start production at the three planned factories. Volvo and Geely originally announced in 2011 its plans for producing engines and vehicles in China.

They said the vehicle assembly plants in Chengdu and the northeastern city of Daqing received official approval in October and February, respectively.

The engine plant, in the city of Zhangjiakou near Beijing, which will have capacity to produce 300,000 engines a year, received a green light from the Chinese government in February.

Though neither Volvo nor Geely has announced what models they plan to produce in Chengdu and Daqing, the sources said the Chengdu factory was likely to produce the long-wheelbase version of the Volvo S60 sedan it developed especially for Chinese consumers.

The plant is expected to officially open in June and would likely aim to reach full production before the year's end. Volvo has already produced about 40 of those long-wheelbase S60s in "pilot" production to verify and improve quality.

The Daqing plant is slated to begin production by the middle of next year. The plant is expected to produce sport-utility vehicles such as the XC90.

One insider said the XC90 would undergo a full redesign soon, but the Daqing plant was likely to produce the current XC90 model. Volvo is likely to ship the redesigned XC90 into China from Sweden, he said.