Volvo’s electrifying decision

Volvo has shaken up the automotive world with its recent announcement that it will produce only electric or hybrid models after 2019. For some, the move is a PR stunt, an attempt to ride the tide of enthusiasm for sustainable energy and divert attention directed at Tesla, the upstart auto manufacturer whose market valuation threatens to surpass that of General Motors. For others, it is a bold move to claim the pole position in the automobile market of the future.

For casual observers and drivers, the announcement is an oddity as Volvo is considered a stodgy manufacturer of boxy, safe and dependable vehicles. Aficionados know, however, that the company has been a pioneer of numerous auto safety innovations, such as the three-point seat belt. Under the hood Volvo has been committed to a smaller engine than most other major carmakers — a move that predated the focus on fuel economy and emissions. That decision forced Volvo to explore hybrid technologies to power luxury vehicles whose purchasers demanded no sacrifice in speed or acceleration despite having smaller engines.

While the decision was made by Volvo Cars CEO Hakan Samuelsson, it aligns perfectly with the interests of Zhejiang Geely Holding Group, the Chinese company that bought Volvo in 2010. China has become the company’s largest market and the decision to go electric will strengthen its position there as China increasingly focuses on going green. China accounts for half the world’s electric vehicle sales. It is forecast that sales there will reach 580,000 units this year, a 58 percent increase from 2016. To better tap that market, Volvo will be producing its first fully electric car in China in 2019 — one of five new models the company will launch between 2019 and 2021 — and will export them around the world, though it will also produce new models at manufacturing facilities in Europe and the United States.

While all-electric vehicles account for less than 1 percent of global auto sales, that segment is exploding. Global sales of electric vehicles jumped 60 percent in 2015 and one authoritative analysis predicts that 54 percent of new cars — more than half of all vehicles sold worldwide — will be electric by 2040. That headline figure is startling, but more important still is that the same organization predicted a year ago that electric car sales in 2040 would reach just 35 percent of the total. The future is closer than many think.

Thus, while Volvo is the boldest of the major carmakers, others are making similar, albeit less ambitious, plans to produce electric and hybrid vehicles. Tesla is the standard bearer, as it produces only electric cars, although it sold less than 80,000 last year. Overshadowed by the Volvo statement was Tesla’s announcement that it will begin mass production of its Model 3 several weeks ahead of schedule. The car will cost less than half of its predecessor and production of 20,000 cars a month is expected by December.

Toyota has long been in the electric market, selling more than 10 million hybrids since they were introduced in 1997 and Honda has joined Hitachi to launch an electric vehicle joint venture. BMW plans to deliver 100,000 electric vehicles this year and has ambitious plans to introduce three new or adapted electric vehicles by 2020 and Mercedes-Benz has joined with a Chinese partner to produce an electric vehicle that it will sell by 2020. General Motors, Ford and Fiat Chrysler of the U.S. are selling a variety of models; Ford has announced that it plans to market 13 new electric or hybrid vehicles that should cover virtually the entire range of its offerings, from Mustangs to pickup trucks.

Skeptics highlight the still significant obstacles to realization of the electric vehicle market. Battery technology, which is central to the promise of such vehicles, remains a work in progress — although considerable progress has been made. Once that is mastered, infrastructure has to be established: Charging stations must become ubiquitous; eventually they will have to spread to work and residences, an evolution that will have knock-on implications. Given the dependence of many governments on gas taxes for revenue streams — often for road maintenance — the ripple effects of the proliferation of this technology are only beginning to be understood.

Solutions must come sooner rather than later. The need to limit greenhouse gases is forcing manufacturers to move more quickly toward green technologies. A future of driverless cars will spur demand for electric vehicles as that is an easier way to refuel automatically. Volvo is in front of the competition, but the race to dominate the electric vehicle market is just beginning.