By Christina Amann and Victoria Waldersee

MUNICH (Reuters) – The variable costs for producing electric vehicles (EV) will remain higher compared to combustion engine models for the foreseeable future, the chief executive of Mercedes-Benz said on Sunday, adding this would continue to fuel intense competition.

Ola Kaellenius’s comments come as Mercedes-Benz disclosed more details about its newest electric vehicle architecture, the CLA compact electric sedan, which will launch next year and target 30% to 35% more driving range.

“The variable costs for an electric car are higher. It will remain that way for the foreseeable future,” Kaellenius told journalists at the IAA car show in Munich, adding higher costs could not be passed on to customers on a like for like basis.

Variable costs weighing on the price tag of EV production include raw materials for batteries, software development, and electricity prices.

Kaellenius said this was the reason why the group was working to optimise fixed costs and resource allocation to reach the same profitability with electric cars as it could with combustion engines.

The new CLA is targeting power use of 12 kilowatt hours per 100 kilometres, and more than 750 km of driving range, which compares to the 17 to 18 kWh per 100 km in a EQA 350 compact SUV model Mercedes offers today.

Asked how much the new CLA class reduced costs from the previous generation, Mercedes-Benz Chief Technology Officer Markus Schaefer said they were moving towards a significant cost reduction for batteries.

Batteries for the CLA will be produced by key supplier CATL and ACC, in which Mercedes owns a third.

The CLA, which will go into production next year and come onto the market from 2025, is an attempt to reduce complexity in model development which has increased significantly in recent years, said Schaefer.

Mercedes-Benz will offer hybrid and all-electric versions, while no diesel versions are planned.