Stellantis CEO Carlos Tavares is optimistic about the eventual outcome for his new, transatlantic company, but he has his sights set on a steep mountain to climb – and climb quickly – as Stellantis switches to electric vehicles and phases out internal-combustion engines in less than a decade.
“The automotive market is very competitive. There is pressure on pricing, inflation from new regulation. These are squeezing the margins, of course,” he says in a July 21 online event hosted by the Automotive Press Assn. in Detroit.
“This squeeze needs to be pushed back by productivity and ideas,” he says. “If you do not come up with enough ideas, that’s when you get restructuring, and that’s what we are trying to avoid.”
Tavares (pictured, below left) is particularly worried about affordability for consumers, he tells Joe White, global automotive industry editor for Reuters, in a 1-on-1 “fireside chat” via Zoom. White also moderated a question-and-answer session with the online audience.
Affordability is already an issue, and it’s only going to get worse when the auto industry switches to electric vehicles, Tavares says. Including the necessary investment in new technology, he estimates EVs will cost an additional 40% to build, compared with vehicles with internal-combustion engines, and that’s far too much to pass along to consumers.
“We don’t want to disconnect with the middle classes,” Tavares says. “If we want to stay affordable while building a new electric technology that’s 40% more expensive, then we have to work harder on the cost reduction.”
Critical Mass; Steeper Climb Ahead
Cost reduction was a big part of the rationale for the Jan. 16, 2021, merger that created Stellantis, the world’s No.4 automaker by production volume, out of the former Peugeot S.A. and Fiat Chrysler Automobiles N.V.
In a 2020 annual report filed with the Securities and Exchange Commission, Stellantis estimates about $5.9 billion in annual savings from the merger.
“This is exactly the reason we created Stellantis,” Tavares says. The merged companies can eliminate redundant costs, share product platforms, spread costs for development and parts over a much bigger volume and, importantly, generate more innovation based on a diverse workforce, he says.
“We are very, very, diverse – more than any German, Japanese or American competitors,” Tavares says. The CEO says Stellantis is outperforming its targets in terms of innovation, cost savings and problem-solving, in large part because of bottom-up suggestions from the rank and file.
Tavares says the challenge of switching to EVs is going to get even tougher as time goes by. Everybody in the global auto industry is talking about how ambitious the volume and market-share goals are for electric vehicles from now until 2030, he says.
Stellantis says its targets are a 40%-plus mix of EVs and plug-in hybrids combined in North America by 2030, up from 4% today; and 70%-plus in Europe by 2030, up from 14%.
But the targets accelerate much faster from 2030 to 2035, Tavares says, by which time some governments are talking about banning internal-combustion engines entirely.
Automakers who aren’t already preparing for that second “huge capacity step,” Tavares says, “are going to put themselves in trouble.”