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Volvo’s Electric Car Move Could Help India And China Clean Up Their Automobile Act

It is expected to spur innovations and lower costs in fast-growing markets.

09/08/2017 8:31 AM IST | Updated 09/08/2017 8:31 AM IST

The mainstream automaker's move towards electric cars has opened another battlefront to fight plant-warming emissions.

Andrew Wragg
The era of internal combustion engine could end sooner than expected.

Unless the runaway growth of automobiles run on fossil fuels eases off, particularly in China and India, carbon dioxide emissions from cars and motorbikes will continue well into the latter half of 21st century. It is in this context that the recent announcement by Volvo to phase out cars powered by petrol and diesel assumes importance. This could be the beginning of the end of the internal combustion engine that is responsible for as much as 12% of global greenhouse gas emissions.

Volvo Cars said this month that all the models it will introduce from 2019 will be either hybrids or powered solely by batteries. "This announcement marks the end of the solely combustion engine-powered car," Håkan Samuelsson, President and Chief Executive, said in a statement. "People increasingly demand electrified cars and we want to respond to our customers' current and future needs." By 2025, Volvo hopes to sell one million electric cars in a plan it says will end the era of automobiles powered solely by an internal combustion engine.

This could be the beginning of the end of the internal combustion engine that is responsible for as much as 12% of global greenhouse gas emissions.

Although most major automakers such as Toyota, Ford and General Motors offer hybrids and battery-powered options, none have so far been willing to stop production of cars powered solely by petrol or diesel. The decision by the Sweden-based and Chinese-owned car company known for its safety standards is the boldest commitment yet to technologies that may represent a minuscule share of the current vehicle market but are increasingly seen as critical to fighting climate change and urban air pollution.

Electrified cars are of two major varieties. Hybrids, which combine battery power with petrol and diesel powered engines, are the most popular. The Toyota Prius, which has achieved cult status since it was introduced in the market since 1997, has sold over 10 million units as of January 2017, according to the company. Cars that run wholly on battery power are still rare because they are relatively very expensive, take a long time to recharge and have limited mobility ranges, such as the Mahindra Reva that was introduced in 2001 in India.

However, most automakers expect the share of electric cars to grow rapidly in the coming years, as the technology improves, prices fall and public charging stations become more commonplace.

Bright prospects

Industry watchers have forecast a bright future for electric cars as public concerns increase over climate change due to the burning of fossil fuels. "Consumer demand is starting to shift in favour of electrified vehicles and has strong disruption potential," McKinsey and Company said in a report early this year. Electric cars will outsell fossil fuel powered vehicles within two decades as battery prices plunge, Bloomberg New Energy Finance (BNEF) said in a forecast in July 2017.

"By 2040, 54% of new car sales and 33% of the global car fleet will be electric," BNEF said in its outlook. "Falling battery prices will bring price-competitive electric vehicles to all major light-duty vehicle segments before 2030, ushering in a period of strong growth for electric powertrain vehicles." Electric cars will reach price parity by 2021, BNEF said.

Carlo Venson
Rush hour traffic jam in an Indian city.

The latest BNEF forecast is more aggressive than projections made by the International Energy Agency (IEA). Surging investment in lithium-ion batteries, higher manufacturing capacity at companies including Tesla and Nissan Motor, as well as emerging consumer demand from China to Europe support these projections, it said. In just eight years, electric cars will be as cheap as petrol vehicles, pushing the global fleet to 530 million vehicles by 2040, BNEF has predicted.

Volvo's gamble could be largely motivated by the recent surge in demand for electric vehicles in China, which is driven by high subsidies offered by the government.

There are many challenges ahead for electric cars but they have caught on much faster than was thought earlier. There were two million electric cars on the roads last year, up 60% from 2015, according to the Global EV Outlook 2017 by IEA.

Falling battery costs

Lithium-ion cell costs have already fallen by 73% since 2010 and BNEF predicts innovations of battery manufacturers will accelerate and lead to further steep declines in average prices over the next two decades. "This is economics, pure and simple economics," BNEF's lead advanced-transportation analyst Colin McKerracher said. "Lithium-ion battery prices are going to come down sooner and faster than most other people expect." While the price of batteries won't fall as fast as solar panels, it could still lead to suppliers getting squeezed as they compete for contracts, McKerracher said.

However, BNEF's analysis omits mention of battery pack lifetime and the nettlesome question of pack replacement costs over the average lifespan of an electric vehicle, Matthew N. Eisler, Lecturer at Strathclyde University in Britain and author of Overpotential: Fuel Cells, Futurism, and the Making of a Power Panacea, said in an article. "The electric space is evolutionary, not revolutionary," he said.

Emerging markets

Volvo's gamble could be largely motivated by the recent surge in demand for electric vehicles in China, which is driven by high subsidies offered by the government. Volvo was sold to China's Zhejiang Geely Holding group in 2010. China overtook the US in 2009 as the world's largest auto market in terms of the number of family vehicles sold.

The Indian government also is keen to proactively promote electric cars. The world's fastest growing major economy wants all cars in the country to be powered by electricity by 2030.

Geely has a commanding share of the Chinese electric vehicles market, which has been growing rapidly in recent times. China registered as many as 352,000 new electric vehicles in 2016, compared with only 159,000 in the US during the same period. The world's second-largest economy wants 11% of all car sales to be electric by 2020. This should add up to nearly three million such vehicles sold annually, according to a report by Research In China, a think tank based in Shanghai.

The Indian government also is keen to proactively promote electric cars. The world's fastest growing major economy wants all cars in the country to be powered by electricity by 2030. "The idea is that by 2030, not a single petrol or diesel car should be sold in the country," Energy Minister Piyush Goyal said in April this year.

India's ambitious plan to sell only electric cars by the end of next decade would require nearly eight times the global stock of such vehicles, according to IEA. The country would need to sell more than 10 million electric cars in 2030, compared with the almost 1.3 million on the road worldwide in 2015, IEA told Bloomberg.

India can save 64% of anticipated passenger road-based, mobility-related energy demand and 37% of carbon emissions in 2030 by pursuing a shared, electric and connected mobility future, according to India Leaps Ahead: Transformative Mobility Solutions For All, a report prepared by the government's policy think tank Niti Aayog and Rocky Mountain Institute (RMI), a US-based research organisation. "These are the types of ambitious targets that drive transformations,'' said Clay Stranger, director at RMI.

This was first published on India Climate Dialogue.

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