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Volvo’s Electrification Strategy not as Far-Flung as it May Seem

August 8th, 2017

Volvo’s announcement on July 5, 2017 that all of its vehicles would be all-electric or hybrid electric by 2019 took the automotive world by surprise, but its goal is neither as risky nor as sweeping as many industry experts have made it sound. Volvo’s repositioning as an electric car company will help the company establish a competitive advantage in a market that offers a plethora of vehicles with the safety and premium features that once made Volvos unique.

A Gradual Approach to Electrification Gives Time for Consumers to Adapt

Volvo will still employ internal combustion engines in many of its vehicles, which hedges against slower than anticipated electric vehicle adoption and gives time for Volvo and other players to develop a charging infrastructure. Though many headlines suggest that Volvo is going all-electric, the reality of Volvo’s near-term future is that plug-in hybrid and conventional hybrid technology (i.e., what has been offered in the Toyota Prius for 20 years) will be offered alongside some all-electric options. Volvo’s approach of gradually weaning itself off of internal combustion engines is sensible given its long history in developing internal combustion engines and a consumer base that is accustomed to them. Additionally, outside of the urbanized cores of a handful of countries, electric vehicle charging infrastructure is primitive and will take time and resources to develop.

Electric Vehicles Provide Consumers and Automakers with More for Less

Replacing internal combustion engines with electric motors will reduce cost and complexity for consumers and automakers. All-electric vehicles have fewer mechanical parts than internal combustion vehicles, which means less wear-and-tear for consumers and an easier build for automakers. Among other benefits, electric motors deliver torque quicker than internal combustion engines and take up less room, freeing up space for passengers and cargo.

Volvo’s status as a premium brand enables it to avoid the price pressures that higher volume manufacturers face and its financial backing by Geely provides the capital to develop electric technologies that offer significant improvements over internal combustion engines. The benefits of electric technology will be most evident in all-electric vehicles, as the hybrid and plug-in hybrid technology being offered in the interim is a stepping stone to full electrification.

Electrification Reestablishes Volvo’s Competitive Advantage

By offering each vehicle with an electric powertrain, Volvo will reestablish its competitive advantage but must remain vigilant of others who will try to copy its success. Between the 1970s and 1990s, most Volvos were boxy vehicles that offered premium features and emphasized safety. Then, in the late 1990s, the company tried to reposition itself by introducing svelte luxury cars that were meant to compete with the likes of BMW and Mercedes-Benz. However, because by that time many of the luxury players offered similar safety features as Volvo and at least as good design, most Volvo products did not achieve the sales success that was hoped for them. For now, pursuing electrification as a strategy differentiates Volvo from automakers who are partially embracing electric technology or those that are solely premium players and puts Volvo near the head of the pack for embracing a technology that is set to revolutionize how we think about vehicles.

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Eric Totaro

Eric Totaro is an Automotive Industry Analyst based out of Euromonitor International’s Chicago office. He has extensive automotive knowledge from growing up in the industry and from publishing an internally-circulated automotive briefing while working in management consulting. Eric graduated from the University of Michigan with a BBA.

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