Volvo and the allure of EVs
Times are changing for drivers
Last autumn, after my wife started a new job 25 minutes' drive away, I bit the bullet and bought a second car for the family. I did my research—as most of us do: after a house, a car is often the biggest purchase we'll make.
I wanted an electric vehicle (EV). Her drive is daily and the range on all but the puniest of battery-fired engines would have coped. I craved a Tesla or BMW but having more sense than money the choice came down to a Nissan Leaf or a Nissan Leaf with a slightly bigger battery.
No-go. The Leaf's a nice car and cheap by Tesla standards—but not by diesel ones. The hassle of finding charging points, installing one at home, lingering doubts about reliability (so-called "range anxiety") and, well, the price again sent me back to the diesel engine. We bought a Kia Cee'd that promised fuel economy of around 70 miles per gallon.
My experience is common. Research by McKinsey, a consultancy, published earlier this year says 30% and 45% of consumers in the US and Germany, respectively, consider an EV when buying, but only 3-4% pull the trigger.
I wish I'd been one of them. My new diesel's fuel economy doesn't get close to its boast. We're still schlepping to the Esso too often. Buyer's remorse hit almost instantly. I'd bought another chunk of ageing metal that, in light of just how quickly diesel's popularity is declining in Europe, will soon be worth less than one of the bicycles in my garage.
My next car will be electric. The solar panels on my roof will charge it. My peers say the same—and none of us expects our kids, if they bother to buy a car at all, to plump for one that needs you to pour a toxic flammable liquid into a container so that controlled explosions can propel a drive train while pumping out noxious fumes behind it.
If automakers have anything to do with it, the next generation might not have a choice. Volvo's announcement on 5 July that from 2019 it would be making only EVs is not a statement about demand now, but about demand that manufacturers want to create.
For now, penetration of EVs is low. The global stock doubled from 1m units in 2015 to 2m last year, says the International Energy Agency—but that's still less than 1% of the world's fleet.
One percent seems a small market to pin your future on. But if Volvo, Tesla and the others have their way, the S-curve for EVs will deal with the rest. Marketing will too. Be ready for the spiel that forever renders the internal-combustion engine something akin to a Nokia 3310 handset and the battery-powered car like the iPhone 6: yesterday's technology versus today's.
Back to the future
In short, whatever the size of the market now, carmakers sniff an opportunity to revive their industry by selling not just another tired diesel or gasoline model but something that genuinely feels like it belongs in the same century as a smartphone. Scores of new models will be offered in the next two years—with longer ranges and smaller price tags.
Volvo is too small in most of the world to be anything but a symbol of this. As EV sceptic Cüneyt Kazokoglu, an analyst at Facts Global Energy, wrote on Twitter , despite the company's "cheap marketing trick", Volvo's market share in Europe is just 1.8% and globally only 0.7%.
Still, since 2010, Volvo has been owned by Zhejiang Geely Holding Group, a Chinese conglomerate, and the announcement reflects the proprietor's priorities. Chinese companies, like their government, are serious about EVs. Purchases there are soaring, thanks in part to subsidies. Beijing wants to increase annual sales tenfold in the next decade, to 7m units a year by 2025. Bloomberg New Energy Finance reckons EVs will account for all new-vehicle sales growth in the next eight years.
It's hard to overstate how big a problem this is for the oil industry. First the obvious: real EV take-off from consumers has the potential to wipe millions of barrels of daily oil demand from forecasts, especially if trucks start plugging in too.
Less obvious? The EV era is a threat because oil—which has done more than any other fuel to advance global prosperity in the past 100 years; enables trade and globalisation, air travel; powers ambulances and school buses—risks suffering a devastating image transformation.
Oil's rep will go from the world's most strategic commodity into yesterday's fuel. Consider the fate of coal, which fired the industrial revolution but is now eternally linked with pollution, climate change and an era of dirty electricity. How will the oil industry keep luring young aspirational engineers into a business that starts to look like a 20 th Century relic?
It would be a problem—though it might not be imminent. A mainstay of industry conferences are the speakers who line up to assure their audience of oil's longevity, the developing world's thirst for more crude, the resurgence of SUVs and the statistically peripheral position of EVs in the market. They've been right in the past (remember the peak oil threat?) and might be this time too.
But the past also shows that energy transitions happen—and happen quickly.
If the oil industry's best answer to EVs is a belief that consumers will resist their urge to buy shinier, more advanced, more efficient and, eventually, more economical technology, then investors will punish them. Pinning a business on hopes that drivers will stick with older, dirtier technology is risky.
The worst part of this, for oil companies, is that Volvo, Tesla, BMW, VW, Nissan, Toyota and a host of Chinese automakers aren't plotting this transition because fuel prices are too high for their consumers—that damage was done years ago, during the 2005-08 bull run. Technology, business strategy and a secular shift in consumer behaviour seem to have taken over. Imagine the acceleration if oil prices do stage an unforeseeable comeback.