Electrification Costs Are ‘Beyond The Limits’

Stellantis CEO Carlos Tavares finds the accelerated electrification very challenging for the automotive industry and warns about the side effects in the near future.

Carlos Tavares said at the Reuters Next conference (via Reuters), there is an external pressure – from governments and investors – put on the automakers to artificially speed up electrification, which comes at a very high cost.

“the costs are “beyond the limits” of what the auto industry can sustain”

The manufacturers are forced to invest heavily in plants and then must deal with higher production costs (compared to internal combustion engine cars), which threatens jobs and vehicle quality, he explains.

The main problem is that BEVs cost more upfront and with the increase in price, the volume decreases, because less customers can afford to buy a new car (regardelss of the later lower energy cost):

“”What has been decided is to impose on the automotive industry electrification that brings 50% additional costs against a conventional vehicle,” he said.

“There is no way we can transfer 50% of additional costs to the final consumer because most parts of the middle class will not be able to pay.””

Carlos Tavares outlines two paths – increase the prices and sell fewer cars, or accept lower profit margins. In his opinion, both paths will lead to cutbacks.

Thousands of jobs could be lost, but not only that. Manufacturers would like to have more time for testing or the quality will be undermined as well.

The accelerated electrification “is just going to be counter productive. It will lead to quality problems. It will lead to all sorts of problems.”

According to Carlos Tavares, the company intends to avoid the cuts through boosting productivity beyond the industry norm of 2-3%, to 10%. As we understand, this way, Stellantis will lower the costs and be able to afford the accelerated electrification plan, or at least minimize its negative effects.

“Over the next five years we have to digest 10% productivity a year … in an industry which is used to delivering 2 to 3% productivity improvement”

“The future will tell us who is going to be able to digest this, and who will fail. We are putting the industry on the limits.”

EVs are becoming more and more competitive and their costs are falling (especially including the improved value proposition).

Hopefully, cost parity will be achieved in not-too-distant future, but the transition phase without a doubt will be very challenging for the established manufacturers that must change most of what they were doing for decades or even centuries.

On the other hand, they put themselves in that position by neglecting EVs in the past 10-20 years, instead of developing 1-2 models and gradually preparing for a smoother transition. The launch of the Tesla Model S in 2012 was the high time.

During the Stellantis EV Day 2021 in July 2021, Stellantis announced €30 billion ($34 billion) investment in electrification through 2025. The push includes new platforms and models, battery plants and new technologies.

Carlos Tavares adds also that “governments should shift the focus of climate policy toward cleaning up the energy sector and developing electric-vehicle charging infrastructure.”