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Tesla Is Starting to Face Serious Competition

Volvo's announcement that it intends to starts phasing out purely gasoline- and diesel-powered cars starting in 2019 in favor of electrified models appears strategically timed to coincide with the start of production of Tesla's Model 3, which should be hitting the streets by the end of this month. It's scary news for Tesla: The market for electric cars is largely government-driven, and Chinese-owned Volvo is taking advantage of especially generous government support.

Volvo's model cycle is about seven years. This means it'll keep making purely gasoline- and diesel-powered cars for some time past 2019, but the new models will be, at the very least, hybrids; all of them will have electric engines. "This is about the customer," the company's press release quoted Volvo chief executive Hakan Samuelsson as saying. "People increasingly demand electric cars."

That, however, is not quite true. Most electric and hybrid vehicles are sold in countries where government incentives are the strongest. There aren't many countries where fully electric vehicles and plug-in hybrids amounted to more than 1 percent of new cars sold in 2016, and in most of them, government stimulus -- of both the stick and the carrot variety -- is strong. As soon as the stimulus drops off, so do electric car sales. That happened in Denmark last year, where an attempt to phase out tax breaks resulted in a 71 percent drop in battery-powered vehicle sales and a 49 percent reduction in hybrid sales in 2016, according to the International Energy Agency. It happened in the Netherlands, where tax breaks on hybrids (but not on battery-powered cars) were cut and sales plummeted by 50...


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