Despite EV-only vow by 2030, Volvo is quietly playing both sides by betting on dirty ICEs

By 2025, the Volvo Car Group aims to have 50 percent of its global sales contributed by battery EVs, while the remaining half contributed by hybrids. By 2030, Volvo wants to be an EV-only company.

The company has also made quite a few bold stands on EVs, including pulling itself out of the European Automobile Manufacturers Association (ACEA), because Volvo says the ACEA represents legacy automakers and many of its members are not showing enough commitment in transitioning to EVs. What a way to make friends right?

Behind the bravado that is earning Volvo applause from EV blogs, Volvo is quietly building the foundation for a profitable business in internal combustion engines (ICEs), in case bold projections about EV adoption fail to materialize.

See, Volvo hasn’t, and is not exiting the combustion engine business. It merely transferred its assets in engine manufacturing to another company that it co-owns with Geely.

Aurobay is Volvo’s appointed bad boy henchman to do its dirty work. Based on Skövde, Sweden, Aurobay is an hour’s drive away from Volvo Car’s headquarters in Gothenburg.

With Aurobay, Volvo can be the green hero that EV fans and European Union bureaucrats are so eager to see, while still securing a back-up plan for its future in case this EV-only prediction of the future turns out to be hot air and gasp…. that Toyota has been right all along, that an EV-only solution is overly simplistic to meet the diverse needs of our complex world.

Volvo says the world must be committed to EVs but via Aurobay, Volvo is painting an alternative picture of the future.

Aurobay concedes that there are too many cars in the world that cannot be replaced with battery EVs and there is not enough clean electricity to charge them with.

“Hybrid engines have a future – and we’re continuing to develop them. Electrification is not the only answer to global warming,” said CEO Michael Fleiss in interview with a Swedish magazine in 2021.

In fact, Aurobay says that even by 2040, more than 70 percent of all cars on the road worldwide will still have an engine, adding that unless governments of the world embark on a large-scale scrapping programme (unlikely), BEVs cannot make significant enough reduction in CO2 emissions.

This is why Aurobay is also investing into biofuel technology, adapting combustion engines to run on carbon neutral fuels.

“Now you can make ethanol without destroying harvests,’ he says. Hybrid engines will need to be powered by renewable fuels, instead of petrol and diesel,” said Fleiss, a former engineer at Volvo Cars and Volkswagen.

Volvo owns 33 percent of Aurobay (rest by Geely) but the company says it will divest from Aurobay as soon as the need for engines disappear, which is to say that Volvo will retain this backup plan until the world has sufficiently transitioned into EVs and there is no longer any need for ICEs.

You could almost hear President Akio Toyoda say, “Hang on, Tesla fans gave me crap for saying exactly the same thing but when Volvo says it using someone else’s mouth, it's OK?”

Toyota is developing a retrofit kit that can convert existing cars on the road to burn hydrogen or synthetic fuels. This way, CO2 emission can be cut a lot faster, instead of trying to convince everyone to replace their old cars with an EV that can’t do as much as their previous combustion engine cars.

President Toyoda says Japan has 78 million cars on the road, selling 5 million new cars annually. It would take at least 15 years to replace all these with BEVs but of course not everyone is going to buy a BEV as their next car, so realistically speaking, it would take easily 30 years to replace all cars with fully electric ones, so how is this the only acceptable solution to an urgent climate crisis?

Also read: Toyota is quietly showing how everyone is missing the point about carbon neutrality

Aurobay is now promoting its expertise and services to other carmakers who want to focus their resources on developing EVs, but at the same time can’t quite ditch combustion engines yet.

The company is rumoured to be in talks with Renault, which had recently signed an MoU with Geely to develop hybrids.

The company is pitching to other car makers to pool their resources and consolidate their non-electric drivetrain assets.

"Combining different assets “would absolutely make sense economically -- it’s quite an expensive product,” said Fleiss in an interview with Bloomberg.

Aurobay believes that as others exit the supposedly dirty engines business, there will be a gap in demand and possibly a very big business opportunity.

As Volvo phases out combustion engine models, Aurobay is now offering a range of Volvo 3- and 4-cylinder engines with various states of electrificaiton - from mild to full to plug-in hybrid - to other car makers.

The company is also considering an IPO but has yet to give a timeline for its listing. CEO Fleiss said a surprising number of investors have reached out to him with options to buy the company.

“These investors see there is a big business still to make, and quite some revenue to be done before this technology dies out,” he said.

This might sound counterintuitive given Tesla’s valuation but remember that Warren Buffett has since cashed out his investments from Chinese EV battery-leader BYD, and is increasing his positions on oil stocks, especially Occidental Petroleum.