Volvo CEO's bold prediction: EV-ICE price parity by 2025

Volvo Cars' CEO Jim Rowan sees electric vehicles reaching price parity with their fossil fuel-burning counterparts a lot sooner than many.

How soon? Roughly two to three years from today.

Furthermore, Rowan said: "There's no way that any company should be relying on government subsidy to be successful."

The former Dyson CEO, who took the helm of Volvo at the beginning of this year, made the bold claims amid high battery materials costs, the recent passage of the Inflation Reduction Act — and Volvo's launch last week of a flagship electric crossover.

The seven-seat EX90, the first Volvo built on an EV-only architecture, sets the Swedish automaker on a sprint to go fully electric by the beginning of the next decade.

But to get there, Rowan said, Volvo must get EV prices down quick.

"We think we get [to price parity] ... around 2025, where there'll be enough technology that's driving down cost on the battery," Rowan told Automotive News Europe on the sidelines of a media event in Stockholm, Sweden. "Technology will drive range up. Less batteries, but more range, at less cost — we'll get there."

Smaller models will also help Volvo lower EV prices.

Next year Volvo will reveal a diminutive crossover, which Rowan said will be a "city car aimed at a younger demographic who can subscribe to it."

The crossover will slot below the XC40 and C40 compact crossovers and could arrive in U.S. stores late 2023, according to AutoForecast Solutions. It is part of a wave of EV models, including a sedan and two sporty wagon-like models, expected from Volvo in the next few years.

But Rowan veers from some of his industry peers who expect higher battery and raw material costs to lift sticker prices.

"I do not see this parity getting close," Renault Group CEO Luca de Meo told reporters at the Paris auto show last month. "I can come up with better battery chemistry and better power electronics, but these gains would be erased when the price of cobalt doubles in just six months."

EV analyst Sam Abuelsamid said Rowan's price parity target is not "unreasonable" for a luxury automaker.

A premium brand has more "margin headroom", so it can reduce margins on EVs to get parity on the consumer level, said Abuelsamid, principal analyst at Guidehouse Insights.

"In the segments that Volvo competes, it's definitely possible," he said. "In more mainstream segments, you don't have that margin headroom to work with."

Battery prices have sunk 80 to 90 percent over the past 12 years. However, supply chain difficulties and surging demand for raw materials from a rapidly electrifying auto industry have increased battery prices in the last two years.

According to Interact Analysis, the average price of a motor for battery EVs, fuel cell EVs and hybrids rose 26 percent in 2021 and is expected to rise again in 2022.

However, Abuelsamid expects a pricing pullback as more mining and processing capacity comes online and alternative chemistries such as lithium iron phosphate (LFP) are more broadly adopted.

Volvo battery supplier CATL has had success making LFP packs more affordable. A recent teardown of the Chinese company's LFP pack use in Shanghai-built versions of the Tesla Model 3 revealed that CATL's solution was the global leader in affordability at $131 per kilowatt hour.

Volvo said it aims to have its battery pack costs down to less than $100 per kWh by 2025-26.

The federal government's push to expand the nation's public charging infrastructure is also key to meeting Rowan's prediction.

The Biden administration has unlocked more than $1.5 billion in funding in 2022-23 to build EV chargers across roughly 75,000 miles of U.S. highway, including interstates and alternative fuel corridors.

The program makes $5 billion available over the next five years to help states achieve President Joe Biden's goal of 500,000 EV charging stations across the U.S. by 2030.

"It's a lot of money," Rowan said. "That's a great thing, and I think that will drive adoption toward BEV."

Washington is yanking another lever to drive EV adoption and investment in the U.S.

The Inflation Reduction Act, passed in August, includes provisions to boost U.S. manufacturing of electric vehicles and batteries, including new sourcing requirements for vehicles to qualify for EV tax credits.

The law creates a credit for battery cells equivalent to $35 per kilowatt hour of capacity, with battery packs eligible for a credit of up to $10 per kilowatt hour. It also provides a 10 percent credit for critical minerals production.

Volvo's South Carolina-made, sub-$80,000 EX90 partially qualifies for the $7,500 federal EV tax credit. But household income caps will exclude many buyers from being able to claim the subsidy.

"We'll benefit [from the Inflation Reduction Act] when we get to the smaller SUVs that we'll bring," Rowan said, because it'll be targeted to "a demographic that's got less household income because it's their first car."

Douglas A. Bolduc contributed to this report.