Volvo kills pure-gas cars in boost to EVs, hybrids, batteries

Volvo has announced the death of its pure-gasoline vehicles, with 2019 being the last year that it sells a car which is not a pure electric vehicle or hybrid. An important moment in automotive history, Volvo is the first conventional automaker to take such a step – cementing the EV in the market, as the industry prepares to buy and sell a whole lot of batteries.

The Swedish marque is the first conventional car maker to take such a step, marking a significant moment in the automotive industry in the shift away from pure combustion engine vehicles. Electric cars and hybrids represent a very small proportion of the total number of cars sold today, but they are swiftly gaining ground at the premium end of the market where – Volvo is positioned.

Volvo was acquired by Chinese carmaker Geely in 2010, and ever since, the company has been experiencing a resurgence in its fortunes. Volvo has climbed the sales table to 7th in total vehicle sales volume, under the stewardship of Geely.

The fact that Volvo is privately owned by Geely seems to give it some flexibility, not openly enjoyed by other brands. Audi has said that it needs an electric vehicle to be profitable from the minute it rolls off the production line, but Volvo’s private ownership gives it some leeway to focus on top-line growth.

The hybrid will be the dominant format in Volvo’s range, meaning that the company would still be using combustion engines. However, the company said that this new effort would be met from the existing R&D budget, signaling that Volvo would not be developing a new generation of combustion engines.

The move is no doubt partially promoted by the 400,000 pre-orders Tesla took for its $35,000 Model 3 – unheard of in the rest of industry. Volvo’s decision has also been made possible by the falling cost and technical improvements in batteries, that have made EVs affordable. Although now fully committed to electric and hybrid vehicles, Volvo ruled out building charging network infrastructure – something Tesla has been pursuing, as a sales tool.

Volvo’s Chinese ownership could give it a future foothold in what already is the world’s biggest market for electric cars. In 2016, Volvo sold 90,930 cars in China – making it the company’s largest market. Volvo also revealed that it would build its first fully electric car in China based on its architecture for smaller cars which will be available for sale in 2019 and exported globally.

Volvo has yet to plan the supply chains for any of the future vehicles or worked out what prices they will sell at. Sourcing parts from OEMs for EV was made considerably easier when Tesla took the decision to forgo all of its IP in the area – open sourcing some key IP for other companies to use.

Selling pure EVs is still not yet a rounded sales proposition. We are aware that some EVs that are currently being sold at a loss, so that automakers can meet state regulations and attain credits to sell highly profitable SUV’s – as GM are currently doing with the Chevy Bolt.

However, aside from the false pricing in the market, UBS analysts estimate that the consumer cost of ownership will reach parity with combustion engine cars as soon as next year. Reaching price parity will have the effect of creating an inflection point and considerable uplift in EV demand.

Last year, 672,000 EV were sold – just 1% of the total car market.  Of this, 361,000 plug-in cars were delivered in China, up 85% from a year before. The market there is dominated by local brands such as BYD and BAIC.

Daimler AG has announced that they will be jointly investing with Chinese BAIC Motor some $735m in electric vehicle production in China by 2020, to provide the infrastructure needed. Daimler expects it will make half of its EV sales in China. Part of that investment is planned to pay for a new battery factory in China.

Daimler also partnered with the other major EV player in China, BYD, announcing in 2016 that the two companies would build the Denza 400. The car is named the 400 for its estimated 400km of range, it is built on a Mercedes-Benz B-Class platform.

Riot has also learnt that German OEM Bosch is carrying out an evaluation as to whether the company should begin manufacturing automotive batteries. The decision is due at the end of the year or early in 2018, and would bring Bosch into an already competitive area. The number of EV battery factories is rapidly growing, so to meet the forecasted demand which should hit $53bn by 2024 according to global market insights.

GM has also announced plans to launch 10 electric models by 2020. Toyota a leader in hybrid vehicles has now reluctantly announced that it too will begin making pure electric vehicles by 2020.