Where technology and economics collide
Volvo is about to end development of new cars with conventional gasoline engines, the company announced on Wednesday. Beginning in 2019, all new Volvo models will be hybrids or battery-powered electric vehicles.
The company will continue selling the gasoline-powered car models it already has on the market. But all of Volvo’s new cars will have electric motors — including five fully electric vehicles Volvo expects to introduce between 2019 and 2021.
“This announcement marks the end of the solely combustion engine-powered car,” said Volvo CEO Håkan Samuelsson in a company press release. The company hopes that a decisive shift toward battery-powered vehicles will allow it to meet its goal of producing a cumulative total of a million electrified vehicles by 2025.
This is a particularly bold move because right now, hybrid and battery-powered electric cars account for a tiny fraction of the global car market. Hybrids accounted for about 2 percent of the US car market in 2016, for example. But experts expect explosive growth in these numbers over the next decade.
Until recently, high battery costs have forced carmakers to choose between making unaffordable electric cars — like Tesla’s $69,500 Model S — or skimp on battery capacity and make cars whose range and power compare unfavorably to cars with conventional gasoline-powered engines.
But battery costs are plunging. Prices fell by almost 80 percent between 2010 and 2016. And with manufacturers in China and elsewhere preparing to dramatically boost battery production, we can expect economies of scale to push prices down even more over the next few years.
As a result, the economics of electric-powered vehicles have gotten a lot more favorable. Batteries have gotten cheap enough that all-electric cars like the Chevy Bolt and the new Tesla Model 3 can boast more than 200 miles of range and sell for around $35,000. And if battery prices continue falling, we’ll eventually reach a point where electric cars — with their relatively simple electric motors and low-cost electric power — actually cost less to own than a conventional car with its more complex internal combustion engine. One 2016 study projected that we could reach this point as early as 2022.
At that point, the companies with the best electric-powered cars will have a big advantage over companies that are still mostly selling cars with internal combustion engines. Electric cars will be greener, more convenient, and less expensive to own. The stock market is so bullish about this strategy that it has valued Tesla on par with conventional car companies like GM and Ford that sold about 100 times as many cars in 2016.
Volvo wants to catch the same wave Tesla is riding. Tesla has set a goal to produce 500,000 electric cars per year in 2018 and a million in 2020. Volvo’s goal is much less ambitious: the company hopes to produce a total of 1 million cars over the next eight years. Volvo set this goal last year, and it now looks relatively conservative in light of Volvo’s all-electric push. The company sold 534,000 vehicles in 2016, so if it shifts most of its sales to electric vehicles in the early 2020s it will sell a lot more than a million electric cars by 2025.
In any event, ending development of conventional cars with internal combustion engines will put Volvo on a solid footing if electricity proves to be the future of the auto industry.