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Volvo's Electrifying Move Seems Smart

Volvo's pledge to only produce electric and hybrid cars from 2019 makes sense

5Jul

Volvo, one of the world’s most famous car makers and the company who invented and dropped the patent on the 3 point seatbelt saving millions of lives, recently announced another potentially huge move. By 2019, every car they produce will be either fully or partially battery powered.

What comes as a bit of a shock is that this doesn’t seem like a particularly big shock, it seemed like only a matter of time before it came to pass. After all, in 2005 there were fewer than 1000 battery operated cars in the world, now 12 years later there are now over 2 million. Companies who many would have believed would never have adopted the technology have done so, with even Ferrari launching the LaFerrari, a hybrid car that they boast offers ‘The most extreme performance ever achieved by a Ferrari production car’ - quite the achievement from a company who have created famously gas guzzling powerful cars in the past.

The move by Volvo is an indication of how far these innovations have come and is perhaps one of the most significant moves in the car market of the last few years.

However, it is not simply a PR stunt, it makes a considerable amount of business sense with companies like Toyota and Nissan clearly showing that hybrid cars have a big market. The Toyota Prius, for instance, sold 433,002 units in 2016, which is 81% of the total volume of cars sold by Volvo in the same year. There are clear advantages to electric and hybrid cars for consumers too, with significantly fewer costs after the initial purchase. The Telegraph in the UK calculated that a regular car that runs on fossil fuel costs around £1,400 per year on fuel, whilst a purely electric car is only £240 - 82% cheaper. This is before Vehicle Excise Duty (VED), which can add several hundred pounds onto the price of traditional car ownership and is calculated on harmful emissions, meaning electric cars and many hybrids are excluded from it.

It is clearly a rapidly growing market and it makes sense for Volvo to become the car company to truly make the first meaningful move into the area. They portray themselves as a car for those who enjoy nature and the outdoors, which has a natural resonance with the idea of sustainable fuel types.

As a strategy it seems to therefore make a lot of sense for Volvo, but in the next decade it is a move that most car companies may be forced to make. Millennials, who will soon become the dominant generation in the world, are increasingly beginning to favour electric cars. In a recent survey by Google, they found that Tesla, the most famous electric car manufacturer, was the ‘coolest’ car company in the world. Alongside this the price of electric and hybrid cars are likely to plummet and will be cheaper than combustion engine cars by 2022, according to analysts at Bloomberg New Energy Finance, fuelled predominantly by the plummeting price of batteries.

Ultimately, we are approaching the ‘Blockbuster’ moment, where companies who have dominated a market now need to look at shifting how they deliver the same product. As the proportion of electric and hybrid cars sold increases, the sales of traditional cars is only going to decrease alongside it. Regardless of desirability and fashion the inescapable truth is that traditional cars run on a finite substance being used up at an alarming rate, it means that regardless of short-term market fluctuations it will become more expensive as there is less of it to go around. Electric and hybrid cars will therefore become almost an economic necessity for a large proportion of the population. Through aligning the company as a leader in this area, Volvo are essentially making a play at this future market, we’ll have to see whether it works out.

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