Might Want To Look At That Volvo All Electric Announcement Again —-

From Wall Street Journal Today

By Holman W. Jenkins, Jr.
July 7, 2017 5:14 p.m. ET

If your mother says she loves you, check it out. The most popular article on the Journal’s website on Wednesday was headlined “ Volvo to Switch to Electric, in First for Major Auto Firm.” On its front page the next morning, the New York Times declared Volvo “the first mainstream automaker to sound the death knell of the internal combustion engine.”

Well, not exactly. By 2019, Volvo said all its cars would be hybrids or gas-electric hybrids or “mild” gas-electric hybrids—i.e., most will continue to have internal combustion engines.

“This announcement marks the end of the solely combustion engine-powered car,” is how Volvo chief executive Håkan Samuelsson actually put it (emphasis added).

Volvo, unlike just about every major car maker, doesn’t even have an electric car in the market today. Its big winner is a luxury SUV, a gasoline-powered vehicle whose top-of-the-line model is further enhanced, yes, by a supplemental electric drive.

The hybrid version of the XC90 comes with a $75,000 price tag: A customer who wants a hybrid is also presumed to want the 19-speaker, 1,400-watt sound system, the self-parking package and every other option Volvo can stuff into a $75,000 SUV.

Therein lies the real point. Volvo’s announcement signals nothing about the electric-car future and everything about Volvo’s niche marketing.

Not even Volvo could have expected the bounty of free media it won this week. The Swedish company clearly left more impression on American psyches than it ever did on American pocketbooks. In its best years in the 1980s and the mid-2000s, it never broke 0.8% of the U.S. market.

Its brand image as a virtuous innovator survives from the day when it heavily promoted Volvo safety. But Volvo-like safety has long since become the price of admission in the car business, so Volvo has been deliberately rebranding its niche—and its ambitions are entirely wrapped up in being a niche player—as a technology icon.

“It is not just bundling a lot of technology together to have a lot of gadgets in the car. It is important to deliver smart functionality and connectivity,” Mr. Samuelsson explained back in 2014.

But something else is also going on. Volvo is still run out of Sweden. Its chief is Swedish. But the Volvo car business has been owned by China’s Geely since 2010.

Volvo’s biggest market now is China. Starting in 18 months, China’s auto makers will be subject to an increasingly onerous California-style “zero-emission vehicle” mandate.

In fact, only through the intervention of Angela Merkel, the German leader who knows a thing or two about green excess, was the timeline delayed from 2018. Companies will have to build and sell electric cars in growing numbers (starting with 8% of total output) in order to be free to sell the vehicles Chinese customers are most likely to buy.

To repeat a sore point, if the goal is to reduce greenhouse gases, passenger cars are not the place to aim. Electricity production is.

China’s real goal here is to reduce its strategic vulnerability to imported oil. By mandating a switch to electric cars, it’s essentially mandating a switch to a domestic fuel in plentiful supply, coal. An eager convert is the city of Taiyuan, capital of China’s coal belt, which enacted a rule requiring local taxis to be all-electric by 2021.

As part of declaring its energy independence, especially its independence from the U.S. Navy, guardian of the Middle East oil routes, China also is seeking to capture world leadership in lithium-ion technology. Its electric-vehicle mandate includes a requirement that manufacturers use only locally made batteries.

This is the China, by the way, that the media has been trying to turn into the world’s conscience on global warming since Donald Trump removed the U.S. from the Paris climate agreement.

OK, China’s government can do pretty much as it wants. It can order domestic car makers, protected by a 25% import tariff, to make and sell electric cars using local batteries, likely at a loss. But even Beijing has run into political, i.e., democratic, opposition to piling on a European-style gas tax. After several attempts at raising it, gasoline remains a middle-of-the-road $4 a gallon.

France’s new president called this week for a ban on new petrol-fueled cars by 2040. Good luck with that, even in a country where taxes make gasoline $6.50 a gallon. In the U.S., Tesla, whose stock price has been plummeting in recent days, will be delivering its new Model 3 at a time of $2.24 gas, amid a complex thicket of pro-electric-car mandates that end up doing Tesla as much harm as good.

Not even China, by central command, will be able to make mass adoption of electric cars economically viable, at least not without resort to massive mandates, subsidies and other distortions that bring their own problems.

None of which is a problem for Volvo. Volvo isn’t anticipating mass adoption of electric cars. Volvo is anticipating only that its affluent audience will associate Volvo with whatever is cool and cutting-edge in automotive technology at the moment.


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