Volvo expects electric car margins to match conventional vehicles by 2025

FILE PHOTO: An electric vehicle charging cable is seen on the bonnet of a Volvo hybrid car in this picture illustration taken July 6, 2017. REUTERS/Phil Noble/Illustration

GOTHENBURG (Reuters) - Volvo Cars expects its margins on electric cars to match those of vehicles with combustion engines by 2025, the head of the Chinese-owned Swedish carmaker told Reuters.

Global automakers are planning a $300 billion surge in spending on electric vehicle technology over the next five to 10 years but have admitted that higher component costs and limited take-up in initial years will hit margins.

Volvo is investing about 5 percent of its annual revenue, equating to a little more than $1 billion a year, in building driverless and electric cars and has promised to deliver five fully electric cars to market in the next few years.

It showcased the first less than a month ago, made by its luxury performance brand Polestar to rival to Tesla’s Model 3. It also plans to launch a Volvo-branded electric compact SUV this year in the company’s push to derive 50 percent of its sales from fully electric cars by 2025.

“It’s very difficult to say if we’re going to have the same margins in 2025 as we had in 2015 ... because electric cars are very expensive,” Chief Executive Hakan Samuelsson told Reuters on the sidelines of a safety showcase by the company in Gothenburg.

“But I would be absolute sure we will have the same margins with electric cars as we will with conventional combustion cars in 2025.”

Samuelsson said the convergence would be helped by reducing costs for components such as batteries and declining margins on conventional cars.

Reporting by Esha Vaish in Gothenburg; Editing by David Goodman