Volvo wants a quarter of its vehicle sales in Europe this year to be plug-in hybrids to help the automaker avoid fines if it misses the European Union's latest CO2 emissions reduction goals.
The increase would represent a huge jump from 2019 when Volvo said it sold 46,000 plug-ins in Europe, representing around 10 percent of its volume.
The stakes are high for Volvo's electric strategy because conventional SUVs made up more than half of sales last year and are largely behind the automaker's success since the takeover by China's Zhejiang Geely Holding Group a decade ago.
PA Consulting Group puts Volvo's potential fines from the EU for this year at a quarter of its annual operating profit.
CEO Hakan Samuelsson said Volvo will achieve its EU target this year through increased sales of plug-in hybrids.
"We don’t plan to pay any fees or penalties. We want to use our money for product development, not paying Brussels,” Samuelsson said at a press event.
Volvo's EU's target for fleet CO2 emissions this year is 111 to 112 grams per kilometer. Its emissions in 2018 were 129.5g/km and will drop to 121g/km by 2021, attracting a fine of 382 million euros, according to a report by PA Consulting Group.
Volvo will begin sales of its first full-electric car, the XC40 Recharge compact SUV, in the autumn. The EV will also help it achieve its reduction target, along with plug-in models.
Plug-in hybrids combine an electric motor and internal combustion engine and can run for distances of up to 50 km on electric power alone, reducing CO2 emissions. Their sales also count toward the EU's supercredits that allow companies to offset sales of higher CO2 conventional gasoline and diesel models.
Plug-in sales have so far been dependent on tax benefits and grants offered by countries in Europe that help offset the higher cost.
Some countries have reduced tax breaks for plug-in hybrids, for example in the Netherlands, because evidence showed buyers were not using the car's electric driving mode.
Volvo says its plug-in hybrids drive on electric power around 40 percent to 50 percent of the time.
To encourage its drivers to plug in, Volvo will be offering a year’s free electricity to buyers of new plug-in vehicles starting in May.
Volvo offers a plug-in hybrid option for all its car range, the cheapest of which is the XC40 compact SUV, which starts at 52,160 euros in Germany.
Volvo said it will roll out cheaper plug-in hybrid versions below the range-topping T8 plug-in hybrid on more of its range as it attempts to make the technology more affordable.
Its new T6 models use the same 2.0-liter electrified powertrain as the T8 but have reduced power. They will be added to the V60 and V90 wagons and XC60 midsize SUV this year the company said, without giving pricing.
Volvo said it had orders to take sales of plug-in hybrids beyond 10 percent in 2019, but supply is constrained by a shortage of batteries. It said it had now secured battery supply to meet its 2020 plug-in target. The company signed new agreements with battery suppliers LG Chem and CATL last year.
Volvo has also introduced a range of mild hybrids, starting with diesel and gasoline versions on the XC90 and XC60. The mild hybrids, which will wear Volvo’s new B badge, will be equipped with Volvo’s brake-by-wire energy recovery system.
Samuelsson said Volvo's goal is for half of all cars sold in 2025 to be full-electric and the rest plug-in hybrids.