Volvo chief Hakan Samuelsson has said that the Swedish-Chinese carmaker expects margins for electric vehicles to match those of ICE (internal combustion engine) vehicles by 2025.
It is no secret that investment in research and development of the new electric drive-train technologies is an expensive business, as has been apparent in the books of Tesla, which only reached its first profitable quarter in Q3, 2018.
Even legacy carmakers with established supply chains and production processes have admitted the higher costs will hurt profits in the short term as they manage the transition to EVs. With an expected investment of $A420 billion, they will be looking for a return on investment.
Volvo itself is investing just over $A1.4 billion (about 5 per cent) of its revenue in developing electric and autonomous cars, such as its Polestar 2 that is it pitching against Tesla’s Model 3.
Speaking to Reuters at a safety event in Gothenburg, Samuelsson said, “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.”
“But I would be absolute sure we will have the same margins with electric cars as we will with conventional combustion cars in 2025.”
That, of course, suggests that Volvo also expects price parity for consumers to be reached at the same time, unless it believes that consumers will be happy to pay more, on average, for their vehicles. This timeline for price parity would fit other forecasts.
Until it was acquired by Chinese Zhejiang Geely Holding Group in 2010, the iconic Swedish brand suffered a decade of losses under the management of American carmaker Ford.
Just last week it announced that it would pay the second dividend since being acquired, worth $A434 billion after record sales for 2018 despite fallouts from trade wars, increased development costs and falling sales that affected many carmakers.
A spokesperson told Reuters that the carmaker believes it now has enough cash on hand to cover dividends and R&D costs.