Volvo to produce PHEVs in China

Swedish carmaker upbeat over prospects despite unclear policy

Swedish premium auto brand Volvo rolled out its S60L plug-in hybrid electric model during a new-energy auto show in Beijing on October 17, announcing that the model will be locally produced and officially hit the Chinese market in the first half of 2015.

The S60L plug-in hybrid electric vehicle (PHEV), which is set to be manufactured in the company's plant in Chengdu, capital of Southwest China's Sichuan Province, is expected to be the first premium PHEV ever mass-produced in China.

The predecessor of the S60L PHEV, the V60 diesel plug-in hybrid, reported total sales of around 11,000 units in the two years after it hit the market in 2012. The company is also upbeat about sales of the new S60L hybrid in China.

"We believe we have a very good offer… and support from the Chinese government is strong," Lars Danielson, head of Volvo operations in China, said at a press event on October 17, noting that the new-energy sector in China is only in its initial stages and will take off in the future.

　　Government backing

The Chinese government has recently launched a series of policies aimed at spurring the use of new-energy vehicles.

Starting September 1, consumers who buy new-energy cars, including electric cars and some hybrids, were exempted from the 10 percent purchase tax, which is seen as a strong boost to the sector.

Sales of new-energy cars are also climbing. China sold a total of 38,163 units of new-energy cars in the first nine months this year, a surge of 280 percent from the same period last year, according to data from the Ministry of Industry and Information Technology.

Volvo is making efforts to enrich its new-energy product lineup, as its major rivals such as Audi and Mercedes-Benz have also stepped up efforts in this field. BMW's i3 pure electric car and its i8 hybrid model officially entered the Chinese market in September.

The BMW i3 electric car is priced at 447,800 yuan ($73,152) to 514,800 yuan in China. Its i8 is sold at some 1.98 million yuan at present.

Analysts have said that the BMW i3 will compete with Tesla in the premium electric car sector.

Volvo also showcased its pure electric model C30 EV at the October 17 auto show. But Danielson said that plug-in hybrids will be the focus of Volvo's new-energy vehicle development at present, as it can balance customers' demands on environment and the driving experience.

In pure electric mode, the S60L PHEV can drive for up to 50 km, which covers the needs of 75 percent of Chinese daily commuters. Using hybrid mode, the car's total range is about 1,000 km, with combined fuel consumption of just 2.0L/100km.

The S60L gasoline model is priced at between 209,900 yuan and 310,900 yuan in China. Experts say that without subsidies, the price of the hybrid model would be higher.

Beijing-based independent auto analyst Zhang Zhiyong said that prospects for the sales of the S60L remain uncertain. Price could be a factor and it may also encounter policy barriers in some markets. For instance, a new-energy car not listed in the government's recommendation list in Beijing can not enjoy subsidies and in Guangzhou and Tianjin, the policy toward hybrids is still not very clear, said Zhang.

"[Sales of hybrids] is expected to significantly grow once the policy barrier in some cities is removed," Danielson said at the press event.

Though imported new-energy cars still are excluded from the government's subsidy policy, it is not very likely that more premium brands will bring their new-energy cars to local production in the near future, Zhang further noted.

Emission efforts

Volvo's announcement of the hybrid's local production comes at a time when the Chinese government is stepping up efforts to increase the use of new-energy cars and lower the oil consumption rate of conventional cars, as air pollution continues to be an alarming problem in China.

The local governments in Beijing, Tianjin and North China's Hebei Province have decided to add around 20,000 units of new-energy cars to their public transportation fleets by the end of 2015, media reported Wednesday.

On October 16, the Ministry of Industry and Information Technology said in a statement that carmakers that fail to meet fuel consumption targets set for 2015 may be publicly named or ordered to restrict production.

By 2015, the average oil consumption of automakers in China should be reduced to 6.9L/100km, and by 2020, the rate should be further cut to 5L/100km, according to previous government documents.

The current average fuel consumption in the auto sector in China is around 7.38L/100km.

Experts noted that producing more new-energy vehicles as well as adopting power-efficient technology has been the method used by most automakers to bring down their average oil consumption.

Danielson also said at the October 17 press event that Volvo's Drive-E engine, which is said to reduce fuel consumption by 10-35 percent, will be produced at the company's plant in Zhang-jiakou, North China's Hebei Province, in the future.

The Swedish auto brand, which was acquired by Zhe-jiang Geely Holding Group in 2010, now has three auto plants in China. Besides the two in Chengdu and Zhangjiakou, the company also has a plant in Da-qing, Northeast China's Heilongjiang Province.

In the first nine months of this year, Volvo sold 58,910 units of cars in China, up 35.8 percent year-on-year.

However, China's premium car sector is still dominated by three German brands. Audi led the sector with sales of over 412,522 units in the first nine months, followed by BMW with 314,434 units sold in the same period. Mercedes-Benz sold 203,485 units in that time.