Volvo will take on Tesla in the high-performance electric car race after splitting out its Polestar division into a separate electrified car brand.
The move signals a further expansion of the global ambitions of the Swedish carmaker's Chinese owner Geely Automotive.
Polestar will use its close links with Volvo to "design, develop and build world-beating electrified high performance cars", although it will have its own management team.
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The company promised a "portfolio" of vehicles, indicating it will launch models into different segments of the market rather than only focusing on high priced cars.
At least some of the cars it makes will be fully electric, but the company declined to say more, adding it would issue more details about its product plans in the autumn.
The brand will also continue to create high-performance models for Volvo, similar to the relationship between the AMG sub-brand and Mercedes-Benz.
The new business will be run by Volvo's design chief Thomas Ingenlath, with Volvo's head of communications Jonathan Goodman becoming chief operating officer.
Mr Ingenlath said: "I am really excited to take up the challenge of establishing this exciting brand, developing a fabulous portfolio of bespoke products and channelling the passion we have throughout the Polestar team."
Hakan Samuelsson, Volvo chief executive, said: "Polestar will be a credible competitor in the emerging global market for high performance electrified cars.
"With Polestar, we are able to offer electrified cars to the world's most demanding, progressive drivers in all market segments."
Tesla is the market leader in high performance electric cars, with premium rivals such as Mercedes and Audi yet to produce fully-electric premium models.
But Polestar's move into the field as a separate brand marks a different strategy, in pitching a new marque directly against the Californian electric carmaker.
The move also marks the latest expansion for Chinese carmaker Geely.
It bought Volvo from Ford in 2010, and has overseen the revival of the brand.
The company has also announced plans to launch a mass-market brand Lynk&Co in China this year and Europe next year, aimed at younger buyers and pitched as a direct rival to Volkswagen.
It also owns the London Taxi Company, which will produce the next generation of electric black cabs in Coventry as well as small electric commercial vehicles.
Last month Geely's parent company, Geely Holdings, took a controlling stake in Lotus, the British sports car company that is a world specialist in lightweighting technology, as well as a 49 per cent stake in Proton, the struggling Malaysian carmaker that gives the company access to the burgeoning right-hand drive market in Southeast Asia.
"This is further evidence that they are trying to be the Chinese VW with cars in all segments," said Robin Zhu, analyst at Bernstein in Hong Kong.
"It also fits with their recent record of trying to grow as quickly as possible while the global cycle lasts, and Chinese political winds seem to be in their favour."
Geely has previously appointed former communications specialists to senior management roles, last year promoting ex-Volvo PR director Alain Visser to head its new Lynk&Co brand.
Volvo has worked with Polestar in motorsports since 1996, and acquired the company in 2015.