Volvo’s electric bet puts Tesla in trouble

volvo electric car

Volvo has just embarrassed Tesla. The Swedish-based automaker said on Wednesday it would stop producing new gasoline engines from 2019 and switch to a variety of hybrid and all-electric models.

It may seem insignificant – the company, after all, accounted for only 0.6 percent of global vehicle sales last year. But his plan sums up the challenges faced by Elon Musk’s firm.

Of course, Volvo is reheating the engine by proclaiming that it is going for a 100 percent “electric” strategy. It has no plans to eliminate existing gasoline vehicles and will keep the combustion engine in two of three options it will introduce from two years: a plug-in hybrid, which can use gasoline or electric power, and what it calls the smooth hybrid, Such as the Toyota Prius, which converts braking power into electricity.

The industry sells more cars with hybrid engines than pure electric cars. Especially in the Chinese market, which is growing at a great pace and selling around half of the world’s electric and hybrid cars. There is the owner of Volvo, Geely.

Tesla accounts for only 3 percent of electric and hybrid vehicle sales in this market, Barclays says. The market is dominated by local groups that sell cheaper cars and the presence of Daimler and General Motors is increasing. They are likely to further reduce the cost of batteries, robbing Tesla of its main advantages.

It is emblematic of the growing competition that Tesla faces around the world. Virtually all automakers have their own electric or hybrid offerings, whether smaller vehicles like the Nissan Leaf or the BMW range.

That does not mean that Musk’s company is entering a dead end. But it once again calls into question its ambitious goal of selling 500,000 vehicles by the end of next year – five times this year’s rate – and 1 million by 2020.

On the other hand, Tesla continues to suffer from problems with its growth. The latest weakness was a lack of batteries, which kept production 40 percent below demand for much of the second quarter, the company said shortly before the July 4 holiday.

That and the Volvo news subtracted more than 7 percent from Tesla shares on Wednesday. Even so, the Musk carmaker is trading at 25 times the estimated gains in 2020, compared to Toyota’s multiple of just over 10 times the earnings of 2017. More problems are on the horizon.

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