But what kind of engine would they build?
Volvo is a very eco-conscious company, which is why the automaker has begun a slow phase-out of internal combustion engines starting with the all-electric XC40 Recharge. In fact, the company expects half of its sales to be electric by 2025. But the Swedish automaker is not done building engines just yet and is currently in talks with Daimler (parent company of Mercedes-Benz) to co-develop them according to an Automobilwoche report.
A Volvo manager was cited confirming initial talks with Daimler took place but that it was too soon to talk about any joint projects between the two companies. Volvo's Chinese parent company Geely owns a 10 percent stake in Daimler, which might explain why the two companies are interested in working together. Such a deal could also help Volvo avoid global tariffs imposed during the trade war between the United States and China.
As of now, we have no idea which direction this engine deal might go. Would Volvo use Mercedes engines or would Mercedes possibly use Volvo engines? Mercedes does have an excellent new four-cylinder engine under the hood of the A-Class, CLA, and GLB, which produces over 400 horsepower in AMG tune. Volvo has a powerful four-cylinder of its own in models like the XC60, which also produces over 400 hp through a combination of turbocharging, supercharging, and electrification.
This news could also have some connection with the future of Lotus. Geely recently announced a new standalone engine business, which could produce powertrains for upcoming Lotus models to replace the current Toyota-sourced ones. We wouldn't mind seeing Mercedes-AMG getting involved with future Lotus drivetrains, though this might just be wishful thinking on our part. If we had to guess, the Volvo-Daimler engine deal will likely focus on more fuel-efficient engines with no guarantee of any implementation in the US market.