Why Volvo announcement is not what it seems at first glance

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Market factors in Europe and China are behind the reason for emphasis on electric powertrains.

Volvo certainly made the news this week with the announcement it would only offer “electrified powertrains” in all new cars launched after 2019. “This announcement marks the end of the solely combustion engine-powered car,” Volvo CEO Hakan Samuelsson said in a statement.

 

I received an e-mail from the evening of the announcement, asking if would be a guest on CBC News that night with Ian Hanomansing, to “discuss the news from Volvo today”. Unfortunately I did not read the message in time to respond. I would have said that the mainstream media missed the fact that, Volvos will still have a conventional fuel-fired engine paired with an electric motor. They will be hybrids. Volvo already offers a plug-in hybrid today.

 

The announcement was a major marketing success by the Chinese-owned company. Volvo was the first of the European luxury brands to offer plug-in hybrids alongside traditional gasoline and diesel engine powertrains. It started in 2012 with a version of the V60. Since then, it has produced plug-in hybrid versions of the XC90, S90, V90 and XC60.

 

But emerging market factors in Europe and China mean conventional hybrids will no longer be the answer.

 

Diesel engines are falling from favour in these markets, which have until now been the dominant source of motivation. The Volkswagen diesel scandal brought attention to a movement that had already been well underway in Europe and Asia. Regulations in both parts of the world have cracked down on emissions from diesel engines. Many European cities have and/or plan to ban diesels.

 

More than 80% of all Volvos sold in Europe during the first quarter of this year are diesel-powered! China’s well-known air pollution issues have resulted in a push for stricter emission standards. Volvo, like others, is facing a real problem in its biggets markets.

 

The solution to tighter emission rules for diesel engines to this point has downstream treatment. Harmful by-products of the combustion process are collected within the exhaust system and burned off at scheduled times with the injection of a special chemical, in many cases called AdBlue.

 

These treatment systems are expensive and they not capable of meeting newer regulations without even more costly add-ons. The emerging solution for carbon dioxide emissions from internal combustion engines involves the use of 48-volt electrical systems.

 

Volvo joins Audi, BMW, Mercedes and Volkswagen in the move to all-electric vehicles, most of which will combine an internal combustion engine with electric motivation. They will be hybrids. Audi has announced every model in its lineup will have a hybrid or purely-electric version by 2020. BMW says the electric iNext will replace the 7-series as its flagship in 2021. Mercedes will release 10 new electric vehicles by 2022. Volkswagen plans a 48-volt hybrid drivetrain in the next generation Golf.

 

Expectations are that battery-powered passenger vehicles will account for up to 25% of the market in Europe and Asia by 2025. Volvo says it will take until between 2023 to 2025 to phase out all models that are only powered by a combustion engine.

 

Electrification is going to be a tough sell in North America, where hybrids account for less than 1% of all new vehicle sales. Cheap fuel and more relaxed regulations mean the best-selling vehicle is a 5,0000 pound pickup and the fastest growing segment is luxury vehicles. Diesel engines have never been a factor in anything other than heavy duty pickups and the VW scandal quelled any growing interest in diesels passenger cars.

 

On top of that, the Trump administration has indicated it will freeze or soften emission regulations.

 

Volvo is in an excellent position to capitalize on electrification. It has a single platform, a single internal combustion engine and low volume. The move to hybrids and pure electrics going forward is wise business move for its major markets. But it might not work as well in North America where both governments and the vast majority of consumers have show little concern about exhaust emissions.

 

Volvo was purchased from Ford in 2010 by Zhejiang Geely Holding Group which in turn controlled by Chinese billionaire Li Shufu.

 

Geely has invested heavily in the company, staying at arms length and allowing it to retain its Swedish base. As sales have grown, additional production has come from new plants in China and one is planned for the U.S.

 

Diesel engines are falling from favour in these markets, which have until now been the dominant source of motivation. The Volkswagen diesel scandal brought attention to a movement that had already been well underway in Europe and Asia. Regulations in both parts of the world have cracked down on emissions from diesel engines. Many European cities have and/or plan to ban diesels.

 

More than 80% of all Volvos sold in Europe during the first quarter of this year are diesel-powered! China’s well-known air pollution issues have resulted in a push for stricter emission standards. Volvo, like others, is facing a real problem in its biggets markets.

 

The solution to tighter emission rules for diesel engines to this point has downstream treatment. Harmful by-products of the combustion process are collected within the exhaust system and burned off at scheduled times with the injection of a special chemical, in many cases called AdBlue.

 

These treatment systems are expensive and they not capable of meeting newer regulations without even more costly add-ons. The emerging solution for carbon dioxide emissions from internal combustion engines involves the use of 48-volt electrical systems.

Conventional hybrids will no longer be the answer.

Volvo joins Audi, BMW, Mercedes and Volkswagen in the move to all-electric vehicles, most of which will combine an internal combustion engine with electric motivation. They will be hybrids. Audi has announced every model in its lineup will have a hybrid or purely-electric version by 2020. BMW says the electric iNext will replace the 7-series as its flagship in 2021. Mercedes will release 10 new electric vehicles by 2022. Volkswagen plans a 48-volt hybrid drivetrain in the next generation Golf.

 

Expectations are that battery-powered passenger vehicles will account for up to 25% of the market in Europe and Asia by 2025. Volvo says it will take until between 2023 to 2025 to phase out all models that are only powered by a combustion engine.

 

Electrification is going to be a tough sell in North America, where hybrids account for less than 1% of all new vehicle sales. Cheap fuel and more relaxed regulations mean the best-selling vehicle is a 5,0000 pound pickup and the fastest growing segment is luxury vehicles. Diesel engines have never been a factor in anything other than heavy duty pickups and the VW scandal quelled any growing interest in diesels passenger cars.

 

On top of that, the Trump administration has indicated it will freeze or soften emission regulations.

 

Volvo is in an excellent position to capitalize on electrification. It has a single platform, a single internal combustion engine and low volume. The move to hybrids and pure electrics going forward is wise business move for its major markets. But it might not work as well in North America where both governments and the vast majority of consumers have show little concern about exhaust emissions.

 

Volvo was purchased from Ford in 2010 by Zhejiang Geely Holding Group which in turn controlled by Chinese billionaire Li Shufu.

 

Geely has invested heavily in the company, staying at arms length and allowing it to retain its Swedish base. As sales have grown, additional production has come from new plants in China and one is planned for the U.S.

 

About Richard 91 Articles

At the age of five I was already obsessed with all things automotive being able to identify the make and model of car by just the sound of its engine going down the street in front of our house in the small town on the south shore of Nova Scotia. Although I have been covering and writing about the automotive scene for more than 40 years and the light still grows brightly.

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