Volvo said the decision to focus on electrification was made partly in response to ever-toughening legislation on carbon dioxide emissions in its three largest markets of Europe, the U.S. and China. Europe needs automakers to reach an average of 95 grams per kilometer of carbon dioxide by 2021, equivalent to 57 mpg. China requires an equivalent of 47 mpg by 2020 and the U.S. Corporate Average Fuel Economy standards mandate a 54.4 mpg average by 2025.
"That is one of the main reasons we're doing this," Samuelsson said.
Volvo would struggle to meet increasingly tough targets without electrification for its range of mostly larger cars, according to IHS analyst Urquhart.
"They've looked at the targets, and thought, we need to take serious action," he said.
Volvo is particularly vulnerable from the recent rapid decline in diesel sales in Europe, said Matthias Schmidt, automotive market analyst for AID.
Diesel cars produce about 15 percent to 20 percent less CO2 than gasoline models, but the backlash against the fuel after the Volkswagen Group emissions-cheating scandal has turned consumers back toward higher-CO2 gasoline engines.
"Diesel was their main weapon of choice to hit these regulations. Now they have to come up with a Plan B," Schmidt said.
Volvo sales were 83 percent diesel in 2016 across Europe, according to AID data, compared with 73 percent for luxury rival BMW, 70 percent for Mercedes-Benz and 68 percent for Audi. Only Land Rover and Jaguar had a higher diesel share at 96 percent and 84 percent, respectively.
"Don't be surprised to hear a similar announcement to Volvo's coming from JLR," Schmidt said.
German diesel sales were down to 39 percent in June this year, from close to half in 2015, figures from Germany's KBA motor transportation authority show.
Volvo won't develop another new diesel engine again, Samuelsson said last week.
The luxury makers are all pursuing aggressive electric strategies. Audi has said it will launch three all-electric cars by 2020, with the first, the e-tron Sportback, arriving next year. VW Group has said a third of all its sales will be either partially or fully electric by 2025. Mercedes said it will start selling 10 new electric cars by 2022, starting in 2019. JLR will launch its first electric car, the Jaguar I-Pace, at the Frankfurt auto show in September.