Volkswagen’s main car brand raised its mid-term target for profit margins and pledged to speed up turnaround efforts as cost cuts help free funds to boost its sport-utility vehicle lineup and develop more hybrid and fully-electric cars.

The namesake VW brand expects to generate an operating return on sales between 4 per cent and 5 per cent in 2020, compared with a previous forecast of at least 4 per cent, the German carmaker said Thursday in a statement at a press conference at its headquarters in Wolfsburg.

“We will further accelerate the realignment of Volkswagen, continue the worldwide model and electric offensive and work hard on costs,” VW brand chief Herbert Diess said in the statement. “We know which challenges still lie ahead of us.”

Reviving profit at the core VW marque is vital for the world’s largest carmaker to stem the fallout from the diesel-emissions scandal and gather the financial firepower to tackle a seismic industry shift toward battery-powered vehicles and new digital services.

The brand accounts for more than half of Volkswagen group’s global deliveries and develops key technology for sister nameplates including Audi, Skoda and Seat.

The VW brand will invest €22.8bn euros (£20bn) over the next 5 years, including some €6bn alone on new technology and electric-car development.

A big chunk of these funds will be spent on the planned ID vehicle range that’s aimed at pushing back electric-car leader Tesla’s expansion.

VW will offer an all-electric hatchback in Europe in 2020 for a price comparable to the diesel version of its bestselling Golf model and follow up with the ID Crozz sport-utility vehicle in the US.

To generate funds needed to finance electric-car development, VW will widen its SUV lineup to 20 models by 2020 and expects those vehicles to account for 40 per cent of sales volume by then.

It will introduce more than 10 fully or partly battery-powered cars in China by 2020.

VW aims to dethrone Tesla and become the leader in electric cars by selling 1 million purely battery-powered vehicles worldwide by 2025, according to previous statements.

The US upstart’s inroads into more affordable market segments with the Model 3 have been hit by production snags as the California company continues to burn through cash.

Bloomberg