Volvo, Betting on Electric, Moves to Phase Out Conventional Engines

Source: By JACK EWING, New York Times • Posted: Thursday, July 6, 2017

A Volvo plug-in hybrid at an auto show in Beijing in 2014. Diego Azubel/European Pressphoto Agency

Volvo Cars on Wednesday became the first mainstream automaker to sound the death knell of the internal combustion engine, saying that all the models it introduces starting in 2019 will be either hybrids or powered solely by batteries.

The decision is the boldest commitment by any major car company to technologies that currently represent a small share of the total vehicle market but are increasingly viewed as essential to combating climate change and urban pollution.

While most major automakers offer hybrids and battery-powered options, none of them have been willing to forsake cars powered solely by gasoline or diesel fuel. On the contrary, United States automakers have continued to churn out S.U.V.s and pickup trucks, whose sales have surged because of relatively low fuel prices.

Yet Volvo’s move may be the latest sign that the era of the gas guzzler is slowly coming to an end. Tesla, which makes only limited numbers of electric cars, surpassed Ford and General Motors this year in terms of stock market value, despite making significantly fewer cars than those automotive giants — a clear indication of where investors think the industry is headed.

“Our customers are asking more and more about electric cars,” Hakan Samuelsson, the chief executive of Volvo, said in a telephone interview on Wednesday. While Volvo’s strategy has risks, Mr. Samuelsson acknowledged, “a much bigger risk would be to stick with internal combustion engines.”

Though based in Sweden, Volvo is owned by Geely Automobile Holdings of China, which already produces battery-powered cars for the Chinese market. The decision by Volvo to focus on electric vehicles could ultimately give it and Geely a head start if, as many analysts expect, sales of battery powered cars begin to take off. China is already the largest market for electric vehicles.

Volvo’s battery-powered vehicles will be produced initially in China, but eventually also in Europe and at a new factory the company is building near Charleston, S.C.

Hybrids, which combine battery power with gasoline or diesel engines, accounted for about 2 percent of passenger car sales in the United States last year, a number that has been declining because gasoline prices have fallen.

And cars that run solely on battery power are still rare in most countries because of high purchase prices, lengthy charging times and limited ranges.

Still, most carmakers expect the share of electric cars to grow quickly as the technology improves, prices fall and public charging stations become more commonplace. Rapid advances in self-driving cars will also encourage a shift to battery power: It is simpler to link self-driving software to an electric motor than to a conventional engine.

Although no other traditional carmakers have declared their intention to bury the internal combustion engine, virtually all of them are investing in hybrid and battery technology.

Daimler, the maker of Mercedes-Benz cars and trucks, said on Wednesday that it would invest 5 billion renminbi, or $735 million, in a new battery factory it will build in Beijing with its Chinese partner, BAIC Motor.

The major American automakers are moving forward with their own electrification strategies, albeit on a much smaller scale than Tesla and now Volvo.

General Motors, for example, this year introduced the Chevrolet Bolt — a battery-powered model that sells for about $35,000 before government incentives are applied. The Bolt can travel 238 miles on a single charge and will be the basis for other electric models that G.M. expects to add to its lineup.

Ford has sold electric versions of a few mainstream models, but it has not yet developed an all-electric vehicle from the ground up. That is changing, however. The company has said it will introduce a battery-powered S.U.V. by 2020 and will add other electric models thereafter.

The third big domestic automaker, Fiat Chrysler, has lagged. It sells an electric version of its Fiat 500 subcompact car and a hybrid gas-electric variation of its Chrysler Pacifica minivan. But the company has yet to announce any plans to build a new vehicle that is available only as an electric model.

Even though consumer demand for electric cars is so far small, carmakers view it as a way for them to meet stricter fuel economy and pollution standards. The pressure is particularly acute in Europe, where an emissions cheating scandal at Volkswagen has set off a sharp decline in the sales of diesel cars, which account for about half the auto market in the region.

Carmakers including Volvo have depended on diesel to provide better fuel efficiency and lower carbon dioxide emissions. But the Volkswagen scandal has raised awareness of the health effects of diesel exhaust.

Diesel engines burn fuel more efficiently than gasoline motors, but they produce far more nitrogen oxides, which cause asthma and are considered a carcinogen. The cost of the equipment needed to neutralize diesel fumes is becoming prohibitive.

“The diesel engine is getting more expensive,” Mr. Samuelsson said during a news conference in Stockholm on Wednesday. “We would prefer to talk about the alternatives.”

The changing political landscape in the United States has somewhat muddied the outlook for electric cars on the other side of the Atlantic. The Obama administration was highly supportive of electrified vehicles, which could help companies meet tougher federal fuel-economy standards.

But, so far, President Trump has not pursued policies that encourage the development of electric vehicles.

Moreover, the persistence of low gasoline prices continues to push American buyers toward bigger vehicles — trucks and S.U.V.s — and has made the fuel economy of electric or hybrid vehicles less potent as a selling point.

Volvo’s transition will be gradual. It plans to still produce existing models with conventional engines after 2019, but it will no longer introduce new models with the older technology. Depending on demand, Volvo will completely phase out cars powered solely by gasoline or diesel by around 2024.

But by focusing on electrification, Volvo can concentrate its limited research and development resources on new technologies rather than continuing to invest in fuel-powered motors that may become obsolete. With sales of 534,000 cars last year, Volvo is dwarfed by companies like Toyota, Volkswagen and General Motors, each of which sold about 10 million vehicles in 2016.

Volvo will be able to draw on technology developed by its parent company, Geely. The companies can also save money by purchasing components such as batteries together.

Analysts said Volvo’s decision to pursue a lineup dedicated to electric and hybrid vehicles is motivated, in part, by the Chinese government’s efforts to reduce harmful emissions from internal combustion engines.

“Chinese ownership of Swedish-based Volvo likely played a role in the automaker’s announcement today,” said Michelle Krebs, an analyst with the auto-research site “China’s air pollution problems have prompted a more serious push toward cleaner automobiles.”

Volvo said on Wednesday that it would introduce five models from 2019 to 2021 that would run solely on electric power. That includes two models sold under Volvo’s Polestar brand, which the company is marketing as a maker of high-performance electrified cars.

Other models will include plug-in hybrids, which can be charged from power outlets and run for short distances solely on batteries, and so-called mild hybrids, which charge their batteries from the car’s conventional engine or by recovering energy from braking. Hybrids still require gasoline or diesel fuel, but they are typically more efficient because the batteries share the load.

Mr. Samuelsson said the company also wanted to encourage suppliers to invest in battery technology and charging stations.

“It’s important to make a clear statement,” he said.