Zhejiang Geely, parent of Hong Kong-listed Geely Automobile, aims to complete the purchase of Ford Motor Co.'s Volvo unit for up to $2 billion by May, according to the source and to a document submitted to regulators by Geely and seen by Reuters.
The addition of such capacity would nearly double Geely's current output, which reached 321,900 units in 2009 for the entire group, up 45 percent from a year earlier. Geely has set an ambitious annual sales target of 2 million cars by 2015.
Analysts said the 2011 break-even target could be a stretch for Geely, which has no experience running a foreign company.
"I think it's optimistic to break even next year as it needs to build a plant first and it might take time for Chinese buyers to accept a made-in-China Volvo," said John Zeng, an analyst with IHS Global Insight. "It will break even eventually but that's going to take time."
Geely Automobile Holdings Ltd is China's largest private car maker. Its charismatic founder, Li Shu Fu, sometimes likened to Henry Ford, has shown global ambitions for Geely, which means "lucky" in Chinese.
Ford, the only major U.S. automaker to avoid bankruptcy last year, is selling its luxury Swedish brand to free up cash as it climbs out of the industry's worst ever downturn.
The deal would see Geely acquire Volvo for $1.5 billion to $2 billion, with an expected closing date in May after the signing of the initial agreement next month, according to a copy of the Geely document.
Geely said in December it was near such a deal, and later added it had strong support from the Chinese government for the purchase.
Geely will set up a separate company with registered capital of 8 billion yuan ($1.17 billion) to buy Volvo. Foreign strategic investors and the Hong Kong-listed Geely will hold a 51 percent stake of the company.
Geely shares were down 3.7 percent, amid a broader market sell-off and following a run-up that saw the shares more than double since mid-September on hopes for a Ford deal.
The purchase would be the biggest in a recent spate of similar acquisitions of distressed global assets by Chinese carmakers, which have thrived during the global downturn due to strong incentives for their industry under Beijing's 4 trillion yuan ($586 billion) stimulus plan.
Under the deal, Geely will keep the brand and operations in Sweden, including Volvo's headquarters, production facility and research center, intact after the acquisition.
"(Geely) will keep the core value of Volvo as a luxury brand unchanged, while improving it with the development in emerging markets, and add more fashionable, dynamic and passionate international elements," said the document.
Volvo is expected to post earnings before interest and tax (EBIT) of $703 million in 2015, the document said.
A Geely representative declined to comment.
Among other deals involving Chinese vehicle makers, Sichuan Tengzhong Heavy Industrial Machinery is in the process of buying General Motors Co.'s Hummer brand, though that deal has yet to close and GM said earlier this month it is still awaiting approval by Chinese regulators.
Last month, Beijing Automotive Industry Holding Corp (BAIC) sealed a deal to buy technology from GM's Saab unit for $200 million, saying it would use the technology to launch an aggressive campaign to develop its brand both at home and overseas.
The buying spree comes as China zoomed past the United States to become the world's largest auto market last year.
Vehicle sales in the country jumped 46 percent to a record 13.6 million units for the year, according to the China Association of Automobile Manufacturers, well above the 10.4 million cars and light trucks sold in the battered U.S. market.
Analysts expect China's car sales to continue growing this year under renewed government incentives, though they expect the growth rate to slow to about 10 percent.
