Categories: Energy / General Market Commentary
Topics: General Energy / General Market Commentary

Volvo shakes up car market in pursuit of electric dream

Turning point for industry as Swedish group drops combustion engine only vehicles

When the new chief executive of Volkswagen announced in June 2016 that a quarter of its global sales would be electric cars by 2025, analysts sniggered. It was assumed this was simply a talking point to deflect attention from the diesel emissions scandal.

But in the past 13 months, the biggest names in the car world have each placed big bets on electric vehicles. Mercedes owner Daimler said it would aim for a 25 per cent electric share by 2025, General Motors announced plans to launch 10 electric models by 2020, and Toyota — a leader in hybrid cars that has been reluctant to make pure electric vehicles or EVs — has set out an ambition to mass-produce them by 2020.

“There has been a seismic shift between the start of 2016 and where we are today,” said Mike Tyndall, analyst at Citi. Volvo Cars upped the ante on Wednesday, saying that from 2019 it will no longer launch new car models powered only by internal combustion engines. Pure electric and hybrid cars will be the only game in town for the Swedish carmaker, which has been on a turnround path since being acquired by Chinese carmaker Geely in 2010. “No other conventional carmaker has taken that decision,” Håkan Samuelsson, chief executive, told the FT. “I think it will make our cars more attractive.” He added: “It’s also a response to customers. Our customers are asking for more and more electric cars. It’s a definite trend.” Global sales of electric cars were less than 1 per cent of the market last year.

But according to IDTechEX, a market researcher, pure-electric car sales will increase from 672,000 this year to almost 7m in 2027. Hybrids, including the plug-in variety, are set to grow from 2.3m units this year to more than 19m. Two catalysts are responsible for the abrupt, industry-wide shift. US electric car start-up Tesla blew away expectations in March 2016, when it took in nearly 400,000 orders for the $35,000 Model 3 car in a matter of weeks.

Tesla called it the “biggest product launch of all-time”, prompting confusion and head-scratching across the industry. First deliveries of the Model 3 are expected this month. Second, projections of how much an electric car will cost to produce, and what they will cost to buy, have come down considerably due to technological improvements in batteries. UBS analysts estimate the consumer cost of ownership will reach parity with combustion engine cars as soon as next year — two to three years earlier than anticipated — “creating an inflection point for demand.” The Volvo announcement signals the inflection point is nearing.

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