BMW expects its research and development budget, when measured as a percentage of sales, to rise in 2018, its CFO has told a German newspaper.

"Reducing CO2 emissions, electrifying engines and autonomous driving are the key challenges for our industry over the next years," chief financial officer Nicolas Peter told Boersen-Zeitung in an interview published on Saturday, according to Reuters.

He said R&D expenditure would account for about 6% of sales this year, up from 5.5% in 2016.

"Next year, too, should see a higher ratio," Peter was quoted as saying, according to Reuters. The news agency noted BMW expects sales to grow slightly this year compared with the EUR86.42bn (US$96.82bn) generated in 2016, suggesting R&D spending of more than EUR5.19bn in 2017.

Reuters added that German chancellor Angela Merkel, in her weekly Saturday podcast, said it would be desirable for Europe's biggest economy to produce battery cells for electric cars locally and reduce dependency on Asian suppliers.

"And if we are part of the research, also with regard to the prototypes, then I think it improves the outlook of bringing modern production of next-generation cells back to Europe and Germany," she said.

According to the report, Merkel said recently Germany was likely to miss its government's target of putting 1m electric vehicles on the roads by the end of the decade but added that a big breakthrough in demand for battery-powered cars could come very abruptly.

Sale of EVs have remained sluggish in Germany despite discounts introduced last year and granted to buyers of 'green' cars. In 2016, there were less than 80,000 electric cars on German roads, Reuters added.