Volvo, the Automaker Known for Safety, is Betting on Sustainability and Affordability
Something momentous happened a week ago. Volvo announced that starting in 2019, all its automobile models will have an electric motor. All of them. Here’s how the BBC put it: “The Chinese-owned firm, best known for its emphasis on driver safety, has become the first traditional carmaker to signal the end of the internal combustion engine.”
Turning the tables back on clean and affordable transportation.
The shock wave generated by Volvo’s announcement hit Tesla rather quickly. According to USA Today, Tesla’s shares lost more than 5% of their value “as investors apparently grapple with a growing realization that the company’s competitors are gaining ground.” As Volvo doubled down on electric engines, they indicated that they plan to sell one million electric cars by 2025.
Meeting Demand for Sustainable and Affordable Transportation
Unlike the pricing volatility experienced in the U.S., where gasoline prices at the pump fluctuate up and down and have been historically cheap, gas prices in most other developed economies have been historically high and seldom drop in any significant way. The result has been a strong demand for alternative modes of transportation, especially public transportation. However, as Tesla itself exemplifies, electric engine technology has made tremendous progress over the past decade. The entry of “mainstream” automakers into the electric engine market will inevitably make the operation of cars cheap again for more people, which is one of the reasons why Tesla’s shares dropped in value in reaction to Volvo’s announcement.
Couple technological affordability with increasing consumer appetite for sustainable transportation options, and you have an attractive electric car market that companies like Volvo are willing to bet on. Hakan Samuelsson, President and CEO of Volvo’s car-making division, explained, “People increasingly demand electrified cars, and we want to respond to our customers’ current and future needs.”
Anticipating the Future
“Future needs,” as Mr. Samuelsson put it, is exactly the approach to innovation that moves great companies ahead.
Just a few years ago, other industries, like photography, saw established brands that people liked and trusted disappear, as they failed to anticipate the future needs of their customers. Last year, Harvard Business Review wrote an insightful article about Kodak’s demise. Their research showed that the company’s downfall was “not about technology.” After all, Kodak invented the first digital camera and invested billions in photo sharing technology. “The real disruption occurred when cameras merged with phones, and people shifted from printing pictures to posting them on social media and mobile phone apps. Kodak totally missed that.” Why? Because Kodak remained focused on using that technology for solving customers’ current need, printing pictures, which became obsolete almost overnight.
Executives at auto giants like Volvo’s Samuelsson understand that newcomers like Tesla, who cracked the code to a transformative technology, pose an existential threat to established brands in the industry that are only thinking of satisfying current customer needs. Smart automakers have their eye on the horizon and actively embrace disruptive technologies that come along from the Teslas of their industry, such as self-driving cars. This could mean that the future need of automotive customers is transportation without ownership, or even drivers, for that matter. Just as picture taking and sharing did not go away with Kodak, cars will not go away with a shift in consumer’s sense of ownership—they still want to go places using cars.
The Electric Motor Revolution is Not Over
Other transformative technologies emerging alongside electric motors pertain to the energy that powers them. While the options in electric and hybrid cars keep growing, much of the energy people use when they charge them at home or on the go comes from carbon-emitting fuels. This reality continues to make electricity prices volatile and truly sustainable transportation elusive for electric vehicle owners.
The demand that the electric motor revolution creates makes alternative energy companies thrive and prosper as well. After all, Tesla bought Solar City with this energy independence in mind. In fact, solar and wind have experienced technology revolutions that match that of the electric engine. Their early adopters include the giant utility companies that manage the electric grid where electric vehicles get charged. Other technologies, like Hydrogen 2.0, can help add to this mix of clean and independent power by providing fuel that can be generated from water, 24/7, on-site and can make up for some of the drawbacks, like variability, of other renewable energy sources.
Betting on Clean and Affordable Power
A company known for its focus on safety does not make bets when the odds are against them. Volvo’s commitment to include electric motors in all their vehicles starting in 2019 is rooted in careful consideration of factors that range from future consumer demand, as Mr. Samuelsson put it, to technological trends and a concern for sustainability. Consumers and companies alike want clean and affordable energy with as few compromises as possible. One can safely bet this basic need will continue to exist in the future. The forms that the clean and affordable energy of the future take, however, is where innovative companies, from transportation to utilities, need to focus their sights on to stay relevant to their customers.
As the Hydrogen 2.0 ecosystem gains momentum, we’ll be sharing our views and insights on the new Hydrogen 2.0 Economy. We also update our blog every week with insightful and current knowledge in this growing energy field.