Tesla Given A Shock By Volvo’s Electric Shift

Tesla has been given a sudden shock by Volvo.

The Sweden-based carmaker has said on Wednesday that it will shift to a variety of hybrid and all-electric models and it will stop producing new gasoline-only engines from 2019. But simply because of the fact that electric vehicles accounted for just 0.6 percent of global vehicle sales last year, for both the companies that development may not appear too significant at first. But the present challenges that faced by Elon Musk’s firm are summed up by Volvo’s plan.

While it can be easily said that by proclaiming it’s going “all electric”, Volvo is over-revving its engine. But dropping the existing gasoline vehicles is not within the plans of the company.

And in a plug-in hybrid, which can use either gasoline or electric power, and what it calls the mild hybrid, like Toyota’s Prius, which converts braking power into electricity, the company will keep the combustion engine in two of the three options it will introduce starting in two years’ time.

Compared to those pure electric-powered engines, the auto industry sells more cars with these engines. And the Chinese market, where Volvo’s owner, Geely, is based, around half the world’s electric and hybrid cars are sold and therefore that’s especially true in the fast-growing Chinese market.

As Barclays points out, just 3 percent of electric vehicle and hybrid sales in China is accounted for by Tesla. Meanwhile, the likes of Daimler and General Motors – the local players selling cheaper cars dominate, are bulking up. And hence Tesla would be robbed of one of its major advantages because that development would likely bring down the cost of batteries even further.

Tesla is facing growing competition around the world and this announcement by Volvo is emblematic of that growing competition. And whether smaller vehicles like the Nissan Leaf or BMW’s high-end i3 and i8, virtually all carmakers have electric and hybrid offerings of their own.

However, that should not lead anyone to assume that Musk’s company would be driving down a dead-end street. But his aggressive target of selling electric vehicles five times this year’s run rate and just shy of what Volvo currently delivers – amounting to 500,000 vehicles by the end of next year, is being questioned once again. Musk has also set a target of selling 1 million electric vehicles by 2020.

Moreover, growing pains still pangs Tesla. In the latest slip-up, the company said just before the July 4 holiday that it had slipped on its target of batteries and now the company has kept production at 40 percent below demand for much of the second quarter.

And on Wednesday, more than 7 per cent of Tesla’s stock was taken away by the battery news and Volvo’s announcement. Even so, compared with Toyota’s multiple of just over 10 times 2017 earnings, Musk’s carmaker trades at 25 times estimated 2020 earnings.

(Adapted from Reuters)

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Categories: Economy & Finance, Entrepreneurship, Strategy, Uncategorized

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