Cost Pressures Rising as Stellantis Prepares for EVs

With electrification expected to drive up the cost of new vehicles, Stellantis has no choice but to boost productivity and to continue reducing cost to hang on to its middle-class customer base, Stellantis CEO Carlos Tavares said during a session with reporters in Detroit. 

“I have to fight for the competitiveness of my company,” Tavares said. If Stellantis is more competitive than its rivals, it has an opportunity to gain market share, maintain the affordability of its products and protect the company’s future as a provider of mobility services, he said.  

“We must protect affordability to protect our customer base,” he said. 

However, Stellantis cannot forego developing electric vehicle or ask partners to handle the chore or expect subsidies from governments in North America or Europe, which are stressed by deficits, debt and rising interest rates, to continue indefinitely. 

The solution requires higher annual productivity inside Stellantis, he said. “We need 10% productivity, not the usual 3% that’s been common in the auto industry,” he added.  

It also requires cost reductions from suppliers, which provide 85% of the material used in building a vehicle, according to Tavares, who indicated the company is having very intense conversations with its suppliers in the wake of the semiconductor shortages that shutdown plants across the globe. 

The semiconductor shortage also taught the Stellantis valuable lessons, which are already being transferred into the company’s operations and software.  

Lessons from semiconductor shortages 

For example, Stellantis is asking whether it make more sense to work directly with second- and third-tier suppliers rather than utilize a tier-one supplier to ride heard on the supply chain. Stellantis also is pushing to upgrade the semiconductors it uses. 

Many of the semiconductors used by carmakers are a generation or two behind the chips used in the consumer electronics industry. By using the newer chips, the industry gains access to wider capacity, Tavares noted. 

At the same time, it can lower the costs for each of Stellantis’ 14 brands. Each of the 14 brands have software “stacks” developed separately throughout the years. Now they are being combined in a way that will support the distinct characteristics unique to each brand, he said. 

Tavares also emphasized during the conversation with reporters he intended to maintain each of the company’s 14 brands. Each brand has a unique history and distinctive attributes that have kept them alive for decades despite multiple ownership changes.  

Plans call for keeping all 14 brands 

The goal during the next decade is for Stellantis to serve as the bridge between the past and the future, he said. Each of the brands now has its own CEO, focused exclusively on making sure they get the attention and love they deserve. 

Tavares also indicated he was willing to relaunch a vehicle — the Fiat 500e — in California. The 500e, which was often derided by former FCA CEO Sergio Marchionne as a compliance car sold to satisfy California’s regulators, could do well in California, he suggested, particularly since it could be less expensive than some of the other battery-electric vehicles now reaching the market. 

Inflation is not the answer because it sets off an upward cycle that undermines stability, leads to higher interest rates and leaves most everyone in the supply chain worse off, he said. 

Fortunately, the merger of Fiat Chrysler and the PSA Group, which created Stellantis, gives the company more scale. It also demonstrated it has more pricing power, and it is 30% more efficient than its rivals in capital spending. 

The company also has a unique culture where both halves are attuned to need for keeping down costs because they have barely survived financial failure in the past.