FutureStructure

Is Volvo Getting Ahead of Itself or Are the Days of the Combustion Engine Numbered?

Volvo is the first traditional automaker to take such a plunge, which comes despite few signs that the market is ready to bury the combustion engine.

by Russ Mitchell, Los Angeles Times, CA / July 7, 2017

(TNS) -- When people think of Volvo, they tend to think of safety. For decades, that’s how the once-Swedish company advertised its cars.

Now under Chinese ownership, Volvo Cars aims to set itself apart as an aggressive early mover in the electrification of the automobile.

On Wednesday, the company said that all new models starting in 2019 will be equipped with an electric motor. Some will be hybrids. Some will be pure electrics. But as new models come on line, Volvo plans to phase out the conventional automobile powertrain that runs 100% on gasoline or diesel fuel.

"This announcement marks the end of the solely combustion-engine-powered car," Volvo Chief Executive Hakan Samuelsson said in a conference call with reporters. "People increasingly demand electrified cars, and we want to respond to our customers' current and future needs."

Volvo is the first traditional automaker to take such a plunge, which comes despite few signs that the market is ready to bury the combustion engine.

Sales of SUVs and pickup trucks have actually surged recently in the United States, helped by cheap gasoline. And Volvo itself will keep using petroleum-powered engines for some time to come. Current models won’t change their powertrains until they’re upgraded, something that could take years.

The end of the combustion engine “is being overstated,” said Michelle Krebs, senior analyst at Autotrader.

“People always say they’re interested in these cars,” she said of electrics. “They’ll consider them, but they don’t buy them.”

Hybrids and electrics are most popular in California, yet only about 3% of 2016 total car sales in the state were hybrids and about 2% pure electrics. Those numbers are picking up a bit this year.

Nationally, less than 1% of car sales are pure electrics. A report from Deutsche Bank last year predicted that by 2025, “increasingly efficient” combustion engines would still power about 95% of all vehicles.

But global concerns about climate change and air pollution have generated pressure to make the switch. Governments around the world — most notably the Chinese, with the largest car market in the world — are offering incentives and issuing mandates to push buyers into electric cars.

In the wake of emissions-cheating scandals, Europe is moving away from once-popular diesel engines. India is considering banning combustion engines by 2030. Norway, Germany and other countries have also considered bans.

China’s government policies strongly favor electric cars, and the country plans to become a major electric car exporter. China is Volvo’s second-largest market, nearly as large as the United States.

At the same time, battery costs are dropping and maximum mileage range is expanding enough, Volvo believes, to lure more people away from traditional powertrains.

“Volvo has always been an innovator, and this is a massive change in terms of operating a business,” said Akshay Anand, an analyst at Kelley Blue Book.

Volvo’s goal is to sell 1 million electrified cars by 2025, Samuelsson said, including five new pure-electric models.

The first of the pure electrics will be manufactured in China, before assembly expands to Europe and a plant now under construction in South Carolina.

The Volvo brand, while well known, is a niche player in the United States with less than 1% of total passenger vehicle sales.

Globally, Volvo sold 534,532 light vehicles last year, including 84,000 in the United States, nearly the same as in China.

China sold 28 million light vehicles in 2016 compared to 17.55 million in the United States. It also is the fastest growing market for electric cars, with sales of 352,000 cars in 2016, more than double the 160,000 new electric-car sales in the United States.

The Chinese government has poured subsidies into the electric-vehicle market, driven by fears over urban pollution and a desire to make its local industry leaders in green technology.

Earlier this year, China’s Ministry of Industry and Information Technology set a target of 2 million electric car sales, or 20% of all auto sales, by 2020.

Chinese carmaker Geely, and Volvo, plan to be a big part of that.

Led by its charismatic chairman, Li Shufu, Geely purchased Volvo in 2010 to lift the Chinese brand, which had failed to even crack the top 10 in its own market.

The ambitious parent company is determined to make China synonymous with cars the way Japanese and South Korean automakers did decades ago.

Li expanded the company’s portfolio to buy a majority stake in Lotus Cars, the British luxury automaker. He announced plans to make Geely the first Chinese carmaker to market its own brand in Europe and North America with Lynk & Co., a joint initiative with Volvo.

Analysts say Geely shrewdly left Volvo alone, choosing instead to glean expertise from the automaker, particularly on safety. That’s no small detail for a Chinese manufacturer that once unveiled a sedan at the Detroit Auto Show that failed to pass U.S. road standards.

“There seems to be more latitude than expected between Geely and Volvo, which I would say is a great thing,” said Anand, the Kelley Blue Book analyst.

Chinese electric car and battery factories, analysts say, may gain the economies of scale needed to force down electric car costs worldwide.

Tesla is trying to do the same with its mid-market Model 3, which the company plans to begin assembling in large numbers sometime later this year. Next year, Tesla plans to build 500,000 cars in its Fremont plant — about the same number of cars that Volvo now sells worldwide.

In the United States, federal and state subsidies for electric cars haven’t moved the sales needle much. Chevy introduced its Bolt EV this year, a compact car with a range of about 240 miles. Neither Ford nor Fiat Chrysler have designed and built an electric car from the ground up.

Meanwhile, the Trump administration is considering pulling back mileage and pollution requirements approved under former President Obama. President Trump has been silent on electric car policy, with no hint whether or not the federal government’s $7,500 buyer subsidies will continue.

Even Volvo isn’t ditching combustion entirely. Its new “mild hybrid” cars will have a small electric motor that gives an occasional boost to a conventional fuel engine.

That improves gas mileage, and allows the car to idle at stoplights, but launch as soon as the driver hits the gas pedal.

©2017 the Los Angeles Times Distributed by Tribune Content Agency, LLC.