STOCKHOLM—Sweden's Volvo Car Corp. and Autoliv Inc. are joining forces in the increasingly frenetic race to develop autonomous-driving technology, creating a new venture to develop software for sale to the industry at large.

Volvo, the China-owned luxury car maker, and Autoliv, a supplier of air bags and safety belts, said on Tuesday that the new company would start operations early next year to develop automated-driving and advanced driver-assistance systems for use by Volvo and other car makers.

Autoliv would have exclusive rights to sell the technology.

The new company, to be based in Gothenburg with an initial staff of 400, hopes to have its first driver-assistance systems ready for sale by 2019 and automated-driving technology by 2021, Volvo and Autoliv said.

Auto maker Volvo has been busy forging deals in recent months as it places more emphasis on autonomous driving.

Volvo recently announced a partnership with ride-hailing company Uber Technologies Inc. to jointly develop the next generation of autonomous cars. Earlier this year said it would launch autonomous-driving pilot projects in various cities including Pittsburgh and London and in China.

Last week, Volvo said it would hire 400 engineers over the next 12 months to develop safety, autonomous driving and electrification technologies.

Other car makers are also jockeying for position in autonomous driving. Ford Motor Co. said last month it is developing a fully driverless car. German luxury car maker BMW tied up with Intel Corp. and Israel's Mobileye NV in July, aiming to have self-driving cars in production by 2021.

The established auto sector faces competition to develop the new technology, from upstart electric-car manufacturer Tesla Motors Inc. to technology behemoths such as Alphabet Inc.'s Google and Apple Inc.

Autoliv itself has a growing portfolio of products central to autonomous driving, including radar, cameras and sensors, mapping, and driver-assistance systems.

Volvo and Autoliv work together on an autonomous driving project with other public and private sector groups in Gothenburg. Autoliv joined the so-called Drive Me project late last year and the companies agreed to share research and development into safety technologies and engineers to push forward the introduction of active safety systems.

Management of the new company will consist of representatives from both Autoliv and Volvo Cars, while Dennis Nobelius, managing director of Volvo Switzerland and formerly vice president of its 90-series of vehicles, will be the chief executive of the new joint venture.

Volvo Car Corp. is owned by China's Zhejiang Geely Holding Group Co. and isn't affiliated with truck maker Volvo AB.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

September 06, 2016 09:15 ET (13:15 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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