At first glance, Volvo’s announcement earlier this month seems radical: Every new vehicle the Swedish automaker launches from 2019 will have an electric motor. By 2025, Volvo hopes to sell one million electrified cars in a plan it claims will herald the end of the era of automobiles equipped only with an internal combustion engine.
These declarations elicited the usual mixture of enthusiasm and skepticism. After all, automakers have promised the moon many times before, only to fall short. Can this storied firm cause a paradigm shift in propulsion technology?
If history is a guide, probably not. For at least the next decade or so, Volvo will continue to produce purely gasoline-powered cars, especially its profitable SUVs. Nor will all of its electric cars be all-electric; Volvo will also make plug-in and conventional hybrid electrics.
And getting the optimum mix of vehicles will mean the difference between success and failure. All-electrics and plug-in hybrids use big, expensive battery packs that work much harder than do the smaller, cheaper batteries used by conventional hybrids, which are protected or buffered by internal combustion motors. Batteries that are deeply and rapidly discharged—like the ones used in all-electrics and plug-in hybrids—age fast, representing a hidden replacement cost that consumers may or may not want to shoulder. Moreover, automakers (with the exception of Nissan) don’t make battery cells, so they earn no revenue on a significant portion of each electric car.
Volvo watchers might care to study the lessons learned in the clash between the car industry, California air-quality regulators, and federal fuel-efficiency regulators starting in the early 1990s. Out of these conflicting interests emerged a race between Toyota and the U.S. automakers to deliver electrics that could satisfy both environmental and economic imperatives.
It all started with California’s Zero Emission Vehicle (ZEV) mandate of 1990. Popularized in the documentary film Who Killed the Electric Car? as the Ur-moment of the modern electric vehicle, the mandate forced automakers to produce all-battery “compliance cars.” Outraged by this regulatory meddling, the industry responded with hydrogen hype, promising cars powered by hydrogen fuel cells as the ultimate ZEV technology. In principle, fuel cells offered a longer range than did the lead-acid batteries of the day, and the hype helped convince California to delay compliance car quotas.
Less known is that a Clinton-era public/private research and development program conceived to encourage U.S. automakers to improve fuel efficiency also helped foster alternatives to zero emission vehicles. Launched in 1993, the Partnership for a New Generation of Vehicles (PNGV) supported a range of technologies, including hybrid electrics. Japanese automakers responded by developing their own hybrids.
But the players interpreted hybrid technology very differently. Toyota designed its Prius so that the gasoline engine was used for highway cruising and to recharge the battery, which was lightly used in stop-and-go environments. Its battery thus played a secondary role, which meant that it aged at the same rate as the rest of the vehicle. For this role, Toyota selected nickel metal hydride (NiMH), a battery that balanced energy, power, cost, and safety.
Conversely, the U.S. hybrid program placed much more weight on electric-only operation. This type of vehicle, which eventually became the plug-in hybrid, required a super battery. The PNGV spent years trying to develop one based on lithium-ion chemistry, a powerful but expensive battery technology with a notoriously volatile chemistry.
Arriving on the market in 1997 after only four years of development, the Prius proved to be a sleeper hit. Shortly afterwards, industry pressure led California to start giving certain hybrids ZEV credits through increasingly complicated equivalency formulas [pdf]. And several years later, companies convinced the state to roll back (although not eliminate) the mandate’s quotas.
So by the mid-2000s, hybrids were the only commercially available automobile using an electric motor, with most major automakers offering a few low-volume hybrid models. Only Toyota made money from them, however, selling millions of Priuses by the end of the decade.
Chastened, General Motors responded in 2010 with the Chevy Volt. The belated realization of the PNGV’s super hybrid, the plug-in hybrid Volt uses a large lithium-ion battery, giving it a long electric-only range. With 124,0000 units sold to date, it is the most popular hybrid of its kind.
Toyota developed a plug-in hybrid, too. But sales of all plug-ins pale in comparison to the conventional Prius. Consumers, it turned out, preferred a relatively affordable hybrid that ran on a gasoline engine most of the time and produced low emissions to a more expensive hybrid that ran on an electric motor most of the time and produced very low emissions. This technological-economic calculus also explains the record of Nissan’s Leaf. It is the best-selling all-electric, but, like all compliance cars, has struggled to make money. Chevy’s all-electric Bolt is unlikely to change this record.
Now, this story is being replayed, but this time driven by China’s air quality politics, which are seemingly backstopping Volvo’s move (through its owner, Geely Automotive).
And much like automakers of the 1990s, Volvo faces a daunting technological landscape. What might it be up to? Its share of the California market is too small to compel production of a compliance car under the ZEV mandate. Some analysts think Volvo is targeting Tesla, but, if so, it is setting the bar very high. The Palo Alto, Calif.-based firm has done more than anyone to revive the dream of the all-battery electric, selling swoopy supercars equipped with large and expensive lithium ion packs that deliver scintillating performance.
Yet this business model has consistently lost Tesla money despite considerable infusions of public cash. The company’s outsized market capitalization (briefly larger than GM’s or Ford’s in early 2017) is based largely on its promise to deliver the Model 3 as the affordable all-electric. That, in turn, depends on drastically reducing battery costs. Delays in this ambitious and difficult project have shaved considerable value off the company.
Experts agree that battery costs must fall from the current level of around US $230 per kilowatt hour to below $100 in order to reach parity with the internal combustion engine, but they disagree on the timeline. In a widely cited report, Bloomberg New Energy Finance, for example, recently predicted this will happen before 2030; others are less sure. At any rate, the Bloomberg analysis is based largely on extrapolating trends in battery cell cost unfolding since 2010, omitting mention of battery pack lifetime and the nettlesome question of pack replacement costs over the average lifespan of an electric vehicle. Indeed, it is extremely difficult to prove a battery’s longevity, and although strides are being made in this neglected area of research, the focus on cell cost alone is highly misleading. Actual battery costs are a virtual trade secret and much disputed, and have been further obscured by federal and state subsidies, which will not be around forever. But there is no doubt that big batteries cost automakers up front. Tesla recently paid $1.7 billion to its cell supplier Panasonic.
So it is a stretch to believe that Volvo, a company with no experience in the commercial all-electric space, plans to compete with Tesla, at least not in the United States where Tesla has its largest market.
Doubtless Volvo is looking to China, where it sells most of its product and where stringent air quality laws have created the world’s largest market for electric vehicles. As in California, however, industry pressure (including from Geely) may lead the Chinese government to roll back quotas for all-electrics and plug-in hybrids. Indeed, the government is now emphasizing conventional hybrids.
And so while Volvo is following many automakers in cultivating a diverse lineup of green autos to meet all regulatory and market conditions, most of its “electrified” cars will probably be conventional hybrids. All-battery and plug-in hybrid electrics may please air-quality bureaucrats, but conventional hybrids make money. In the electric car wars, they are the path of least resistance.
Volvo may be encouraged by the fact that the Prius is unpopular in China. Toyota stopped producing the model there in 2015, and Beijing levies steep tariffs on imports. Playing by Beijing’s import substitution rules and producing cars in China to gain access to its market may well help Volvo succeed where Toyota failed. On the other hand, it took Toyota years to turn a profit on the Prius, and Volvo-Geely is a much smaller, less-resourced concern. The electric space is evolutionary, not revolutionary, and Volvo is very late to the game.
About the Author
Matthew N. Eisler is a Chancellor’s Fellow and Lecturer at Strathclyde University’s School of Humanities. Eisler’s first book, Overpotential: Fuel Cells, Futurism, and the Making of a Power Panacea, was published by Rutgers University Press in 2012. He is currently working on his second book, a study of the industry and culture of electric automobile technology.