In a direct challenge to Tesla Inc., Volvo Cars unveiled its first high-performance electric-car model in Shanghai on Tuesday, doubling down on its commitment to make only electric or hybrid vehicles starting in 2019.
Polestar, a new stand-alone premium electric-vehicle company owned by Volvo, will bring its first two vehicles to market that same year, with Volvo and its Chinese owner Zhejiang Geely Holding Group Co. pledging to invest $755 million to develop the company.
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Polestar will build its cars at a new plant in the western Chinese city of Chengdu, which already hosts a Volvo factory.
"We want to be leaders in electrification," Volvo Chief Executive Hakan Samuelsson at the event.
The launch of the first Polestar marks the latest step in a global shift toward electric vehicles which, led by China, is quickly gathering pace. Last month, the Chinese government told all auto makers, foreign and domestic, to start building EVs by 2019, having also outlined future plans to ban gasoline cars. Beijing is spending billions of dollars on subsidies to boost the efforts of domestic auto makers to develop EVs.
Polestar -- which previously existed as a Volvo model, rather than as a distinct company -- will also be an experiment in marketing cars through smartphone-based subscription plans with monthly payments but no upfront fee. Polestar vehicles will be available only through 2 or 3-year subscription plans, a method some auto analysts believe could become the norm in years ahead.
"We believe that subscription is the future," said Jonathan Goodman, Polestar's chief operating officer.
The high-performance, low-volume Polestar 1 hybrid coupe -- the vehicle made its debut in Shanghai -- will go on sale in the first half of 2019, followed by the higher-volume, pure-electric Polestar 2 later that year.
The second vehicle is designed to go head-to-head with the Tesla Model 3, said Polestar CEO Thomas Ingenlath, laying down the gauntlet to the California-based pioneer of premium EVs.
Polestar still needs to work out the details of its subscription-based approach, including how much consumers will pay, Mr. Ingenlath conceded, but he said the brand would be "competitive and profitable."
Volvo makes a fifth of its sales in China, and Polestar has the same target here, said Mr. Samuelsson, with Europe and the U.S. also key markets for the new brand.
Tesla is the leading maker of electric premium vehicles, but the broader automotive industry is taking aim at the Silicon Valley upstart. In addition to Volvo's Polestar, the big German premium brands Mercedes-Benz, BMW AG, Audi AG, and Porsche are planning to launch dozens of new high-end electric vehicles and hybrids in the next few years. Maserati, Jaguar, Bentley and other luxury brands are also getting in on the act.
But targeting high-end EV sales is risky, especially in China, some analysts say. While China is the world's biggest EV market, demand for upscale electric cars will be weak for several years, as most auto makers launch bargain vehicles designed to fulfill the government's production quota. Tesla -- which imports cars to China in low volumes -- won't start selling locally assembled cars before the early 2020s, having yet to announce firm plans for a China plant.
"The market for high-end EVs is still very small," said Jing Yang, an associate director at Fitch Ratings.
Mr. Samuelsson dismissed concerns about premium EV demand. He said demand for premium cars is strong and growing in China, claiming Geely ownership would give the company an edge.
"This is our second home," Mr. Samuelsson said. "We are the only [foreign auto] company that really has control over business" in China thanks to Volvo's autonomy within the Geely group, he said, comparing other foreign car makers which must operate through local joint ventures.
Polestar is the latest sign of Geely and Volvo's determination to be at the forefront of the industry's transformation. "Electrification and new energy is the focus of the wider Zhejiang Geely Holding Group," said a Geely spokesman.
The Hangzhou-based firm has emerged as China's leading privately owned Chinese auto maker by sales, with Geely Auto selling over 827,000 cars in the first nine months of 2017, up 80% on the same period last year.
Geely's brand stable is also growing fast. Last year it opened Yuan Cheng, a domestic commercial vehicle maker, before acquiring a controlling stake in Malaysia's Proton and taking over Lotus Cars in May. Lynk & Co., a new marque targeting young buyers with connected cars and innovative service packages, goes on sale in China next month.
Geely previously acquired Volvo from Ford Motor Co. in 2010, and bought the London Taxi Co. -- recently rebadged as the London Electric Vehicle Co. -- in 2013.
William Boston in Berlin contributed to this article
Write to Trefor Moss at Trefor.Moss@wsj.com
(END) Dow Jones Newswires
October 17, 2017 11:09 ET (15:09 GMT)