Volvo Cars has officially announced that it will abandon its previous commitment to sell only pure electric vehicles by 2030, adding another multinational automaker to the list adjusting their electrification strategies. Plug-in hybrids will continue to play a significant role in Volvo's model lineup for the foreseeable future.

Produced by | Heyan Yueche Studio

Written by | Zhang Dachuan

Edited by | Heyanzi

Total words: 2658

Reading time: 4 minutes

In 2021, Volvo announced its electrification goal to phase out all internal combustion engine vehicles, including hybrids, and sell only pure electric vehicles by 2030. Recently, Volvo has revised this strategic plan, aiming for 90-100% of its global sales to be electric vehicles by 2030, with the remaining 0-10% being mild hybrids. The majority of these electric vehicles will include not only pure electric models but also plug-in hybrids.

△Volvo Cars changes its commitment to sell only pure electric vehicles by 2030

The timing for a comprehensive pure electric strategy adjustment is just right

Adjusting its strategy at this juncture is a well-timed move for Volvo.

From a market demand perspective, the growth rate of demand for pure electric vehicles in China, the US, and Europe has slowed. Without subsidy incentives or mandatory regulations, consumers are reluctant to purchase more expensive pure electric vehicles. With uncertain global economic growth prospects, consumers are hesitant to invest in pure electric vehicles. Furthermore, from a user experience standpoint, pure electric vehicles are constrained by various technologies, including battery energy density. In both Europe and China, affordable electric vehicles will be the primary development direction for automakers in the coming years, which conflicts with Volvo's premium brand positioning.

△Affordable electric vehicles remain a consumer trend for a long time to come

From an individual company perspective, apart from Tesla, no pure electric automaker globally has achieved profitability. Electric vehicle businesses of multinational automakers like Ford and General Motors are still incurring losses, relying on internal combustion engine and hybrid vehicle sales to subsidize their electric vehicle operations. Recently, Ford not only canceled its three-row pure electric SUV project but also postponed the production launch of its pure electric pickup truck project to gain time for lower-cost lithium iron phosphate batteries produced locally in the US.

In terms of Volvo's product portfolio, it has deployed five electric vehicles: the XC40 and C40, both adapted from the CMA platform; the EX30 and EM90, introduced from Geely and manufactured by Geely; and the EX90, developed by Volvo based on the SPA2 platform. Among them, the best-selling model is the EX30, although its popularity is limited to the European market. This is mainly due to the generally higher prices of electric vehicles in Europe, allowing Volvo to capitalize on this market ahead of its competitors. Other models have yet to become mainstays in terms of sales in the short term.

△Volvo's only popular electric vehicle is the EX30

Geely's plug-in hybrid technology presents new opportunities

Concurrent with this strategic adjustment, Volvo has also unveiled a facelifted XC90 and its plug-in hybrid version. With this strategic shift, increasing investment in plug-in hybrid technology becomes inevitable for Volvo.

However, given Volvo's current architecture, achieving success in the plug-in hybrid sector appears challenging. While the Volvo XC60 PHEV is the top-selling plug-in hybrid in Europe, its competitiveness in the domestic market based on the SPA1 platform is limited. Whether in terms of electric range, autonomous driving, or smart cockpits, Volvo faces significant pressure to excel in the domestic plug-in hybrid market.

△The Volvo XC60 PHEV is the top-selling plug-in hybrid in Europe

A risk that Volvo cannot ignore is that as the EU imposes tariffs on Chinese-made electric vehicles, domestic automakers will inevitably shift their export focus from pure electric vehicles to plug-in hybrids for the European market. Companies like Geely, BYD, and SAIC have competitive plug-in hybrid technologies, while NIO, AITO, and Leapmotor's extended-range technologies may also gain a foothold in the European market. Therefore, if Volvo aims to compete in its most crucial European plug-in hybrid market, a mid-cycle refresh of the SPA1-based XC90 may not be sufficient to address the challenge posed by Chinese competitors.

△The Volvo XC60 PHEV will face challenges in Europe

Creating a competitive plug-in hybrid system requires an engine specifically designed for hybrids, focusing on maximum thermal efficiency rather than power output. Volvo currently lacks both of these components. After deciding to transform into an electric vehicle company several years ago, Volvo sold its internal combustion engine business to Geely. Geely later integrated the internal combustion engine businesses of Volvo and Geely with Renault's, suggesting that Volvo will likely source engines and hybrid systems from this consolidated group in the future.

Similarly, Volvo does not possess its own plug-in hybrid system. In this scenario, Volvo can seek support from Geely, which has developed the Leishen system and deployed the EMP system in its LYNK & CO brand. ZEEKR also plans to develop a new hybrid system. Volvo can choose to develop its own system or directly adopt Geely's technology, similar to the introduction of the EX30. By introducing an advanced plug-in hybrid system to the European market ahead of competitors, Volvo stands a chance to succeed both in Europe and the US.

△Geely's plug-in hybrid system can be quickly integrated into Volvo's system

Balancing plug-in hybrids and pure electric vehicles

Despite a less optimistic outlook for electric vehicles, Volvo's product planning and development over the past few years have centered on electric vehicles. Consequently, Volvo will unveil several new electric models, including the ES90 and EX60, further strengthening its electric vehicle lineup. Notably, the EX60, based on Volvo's new SPA3 platform, will debut in 2026 and compete with BMW's Neue Klasse iX3 and Mercedes-Benz's next-generation all-electric GLC.

△Volvo's product launches follow a certain inertia

In other words, Volvo will maintain a parallel approach of pure electric and plug-in hybrid vehicles for the coming years.

For a global luxury brand of Volvo's size, maintaining two technology paths simultaneously entails significant investments in model updates and technological advancements. This substantially increases R&D costs and affects profitability. The automotive industry relies heavily on economies of scale, and if Volvo's sales fail to increase significantly as anticipated, its profit margins will face significant challenges. However, Volvo has invested heavily in R&D and manufacturing facilities for SPA2 models over the past few years. The upcoming SPA3 platform can leverage much of this past investment, allowing Volvo to maintain a targeted profit margin of 8% and anticipate significant free cash flow growth starting in 2026. Achieving this goal presupposes limited investment in plug-in hybrid technology. If Volvo is forced to develop its own plug-in hybrid platform, significant investments will be required. Given the three to four-year development cycle for a new platform, maintaining competitiveness post-launch and addressing the challenge posed by aggressive Chinese automakers will be no easy feat.

△Volvo's upcoming electric vehicle R&D and manufacturing will likely leverage previous SPA2 investments

Commentary

In late September, the Volvo EX90, its flagship pure electric SUV that has been delayed for an extended period, will finally be delivered to its first customer. However, the vehicle's autonomous driving capabilities are not fully realized and require ongoing improvements through OTA updates. From this perspective, Volvo still has a long way to go in autonomous driving technology. As for the recently facelifted XC90, without an updated vehicle platform, we cannot expect significant changes beyond its design. Volvo has much to invest in its future, but without a steady increase in sales, these investments may become unsustainable. To address issues immediately and cost-effectively, technologies from Geely, Volvo's Chinese shareholder, may prove indispensable to its success.

(This article is originally created by Heyan Yueche and may not be reproduced without authorization)