Skip to main content

Volvo Cars is breaking up with the internal combustion engine after 90 years and moving on to greener pastures. 

The Swedish automaker is the first major brand to say it will stop producing cars powered only by internal combustion, announcing Wednesday, July 5 that all Volvos launched from 2019 will have an electric motor.

"Volvo Cars has stated that it plans to have sold a total of 1m electrified cars by 2025," CEO Hakan Samuelsson said in a statement. "When we said it we meant it. This is how we are going to do it."

The company said it would launch five fully electric cars between 2019 and 2021, in addition to a range of hybrid cars. Hybrids use electric power to supplement traditional engines, including those powered by petroleum and diesel.

While other car companies have set similar goals - Volkswagen Group (VLKAF) has also targeted 1 million electric car sales by 2025 - Volvo's announcement is notable because it represents a core shift in strategy for a major producer. Volkswagen sold more than 10 million cars last year, while Volvo sold about 500,000.

Samuelsson said the company was responding to shifting consumer demand, as well as an internal goal of climate-neutral manufacturing by 2025.

"Volvo is making an aggressive move to take advantage of growing market opportunities," Electric Drive Transportation Association spokeswoman Christine Spann said in an email. 

Electric vehicles are on the rise among both large-scale and niche producers. Large car companies such as Nissan Motor Company LTD (TYO) - Get Direxion Daily 7-10 Year Treasury Bear 3x Shares Report , Volkswagen, and General Motors Company (GM) - Get General Motors Company Report have all invested in electric, while stock market favorite Tesla Inc. (TSLA) - Get Tesla Inc Report , an entirely electric producer, has surpassed all of them besides Volkswagen in market capitalization despite delivering only a fraction of the number of vehicles.

TheStreet Recommends

The U.S. Energy Information Administration projects sales of light-duty battery electric, plug-in hybrid electric, and hydrogen fuel cell vehicles to reach 1.5 million cars in 2025, or about 9% of the total projected light-duty vehicle sales that year.

Sales will benefit from state programs such as California's Zero-Emission Vehicle regulation as well as the plummeting cost of battery manufacturing. A report released in January from McKinsey & Company said the cost of electric vehicle batteries had dropped about 80% in six years.

Despite rebate programs and declining battery costs, the path to profitability for electric so far has been fraught. For instance, despite its high valuation, Tesla is not yet profitable, operating at a margin of -8.28%, according to TheStreet ratings.

GM, focusing on cost reductions, has said it aims to be the first automaker to sell electric vehicles profitably. Meanwhile, Volkswagen hopes its goal of 1 million electric vehicles by 2025 will give it "leapfrogging cost advantages" that will propel the company's electric cars to profitability.

According to McKinsey, battery costs are likely to serve as a barrier to profitability until between 2025 and 2030. They estimate that a 60 kWh battery costs about $13,600 based on current prices, but that costs will continue to decline.

Volvo is owned by Hong Kong-based Geely Automobile Holdings, and stands to gain from its parent company's investments in electric. China is the largest auto market in the world, with rapidly expanding demand for electric vehicles.

Editor's Pick: This article was originally published on July 5, 2017.

Visit here for the latest business headlines.

Don't miss these top stories from TheStreet: