Volvo’s decision to go electric is a bad sign for oil
A global transition in transportation is getting underway
All Volvos will be hybrids or 100 percent electric beginning in 2019, the CEO announced this week, admitting that his earlier resistance to clean technology was ill-founded and that his customers expect better.
CEO Hakan Samuelsson went from advocate for cleaner internal combustion engines to moving his company all-in on electric powertrains. Volvo says it can deliver a 310-mile range on its electric cars using existing technology.
“Things have moved faster; customer demand is increasing. This is an attractive car people want to have,” he told journalists in Helsinki, Finland. “This announcement marks the end of the solely combustion engine-powered car.”
Yes, adoption of hybrid and electric vehicles is happening faster than CEOs at legacy automakers could have imagined. And while low gasoline prices in the U.S. have discouraged Americans from buying more fuel-efficient cars, the rest of the world is moving toward electric power.
Volkswagen, another European automaker that eschewed the new engine types, announced plans to phase out the internal combustion engine. The company will roll out two SUVs, a sedan and a hatchback that are battery powered in 2019.
As Tesla begins delivering its Model 3 to customers and has back orders through the end of 2018, 2019 looks like it will be a breakthrough year for electric vehicles.
Six new models have been announced for 2019, including long-range cars from Audi, BMW, Jaguar and
Mercedes-Benz.
Automakers are not producing these cars for the U.S. market, though, which is why we won’t see this transition as early as other nations. The real market for electric cars is China, where the government is offering the middle class generous subsidies and incentives to go electric.
Unlike in the United States, Chinese officials also are installing charging infrastructure across the country to ease range anxiety. Admitted ly, dirty power plants will produce the electricity for those vehicles, but the cars will slow China’ s demand growth for imported crude oil, a major concern of the government.
Lower Chinese demand for crude is bad news for oil companies, since most are relying on growing demand in China to keep afloat as demand in the U.S. and Europe remains static or falls. China also is manufacturing 10 low-cost electric cars that can be exported to poor countries, another pillar of future demand for oil.
Financial services company UBS predicts that electric vehicles will start reducing gasoline demand no later than 2031. Hybrid and electric vehicles are only 1 percent of cars produced today, but some estimate they will be 30 percent of new cars made in 2030.
The most important takeaway from Volvo’s announcement, though, is how the company’s market research shows that buyers want hybrids and battery-powered vehicles. So much so that the company is overhauling its entire powertrain lineup.
Since the customer is always right, the market is responding to this change. And the transformation is likely to accelerate in ways that we can’t yet imagine.