On Wednesday, Volvo Cars, the subsidiary of Chinese automaker, Geely Automobile Holdings Limited announced that it will end production of vehicles with solely combustion engines by 2019.
Volvo will neither completely remove combustion engines, nor produce only fully electric cars. Rather, from 2019, all vehicles will be assisted by an electric motor to make them more fuel efficient, known as “mild-hybrid systems.” Volvo will also sell “plug-in hybrids” that allow a car to run fully in electric mode for a certain amount of time.
“This is about the customer,” said Håkan Samuelsson, president and chief executive. “People increasingly demand electrified cars and we want to respond to our customers’ current and future needs. You can now pick and choose whichever electrified Volvo you wish.”
Volvo expects to sell 1 million vehicles with electric engines by 2025. The shift from internal combustion engines (ICE) is only the start of the company’s project to become fully EV, a platform that is currently led by Tesla, Inc. (NASDAQ: TSLA).
The announcement affects more than just Volvo’s stock. Suppliers can rejoice as well as the fact is cars that need both combustion engines and electric motors are a win-win for the autos supply chain because there’s potential to contribute a lot more technology in each vehicle. France’s Valeo SA is trading at 14 times its earnings because of the extra sales opportunities that come with hybrids.
Tesla may also be on the rise as having Volvo as a competitor in the EV market can only shed light on its own products. Many Tesla customers have a concern known as range anxiety, meaning the fear of an EV battery running out before reaching a given destination. In reality, the range of Tesla’s Model S can support the majority of trips. However, if there are more pure EV makers in the market, consumers will be more familiar with them. This means there will be less concerns over battery life and a potential for more sales.
As the market progresses towards hybrid vehicles over ICE’s, engineers and suppliers of EV components will be more qualified. Tesla can expand its platform as well as cut costs. While the San Francisco company will never be able to supply the entire market itself, Volvo isn’t going to put out its line of electric vehicles for another two years. In the meantime, Tesla will remain at the premium level in all categories of the EV market.