Stellantis CEO says electric vehicle tech costs could mean smaller market for new cars
CES offered Stellantis an opportunity to show concept vehicles from Ram and Peugeot, to highlight its plans for an electric aircraft with its partner, Archer, and to tout the company’s technology chops during an expo that generates lots of interest globally in the latest tech news from those who might not pay too much attention to the auto industry.
But for CEO Carlos Tavares, the cost of that technology, specifically the kind that will power electric vehicles, is something that has real implications for the auto industry and its employees and could potentially lead to future cuts.
On Thursday evening following a presentation during what was formerly known as the Consumer Electronics Show and about a month after Stellantis, citing electrification costs, announced it would idle its Belvidere, Illinois, assembly plant, home of the Jeep Cherokee SUV, Tavares spoke about the potential impact of those costs. The comments come at a time when the company has committed to reaching net carbon zero by 2038, with a major part of that focus being its electrification efforts.
Although Stellantis isn’t calling the plans for Belvidere permanent, 1,350 workers there now face a potential layoff.
“One of the challenges, if not the biggest one we have in the electrification road map, is to make sure the technology is affordable to the middle classes,” Tavares said Thursday. “If we do not take care, we will end up in a few years with an overall electrified powertrain which is 40% more expensive than the conventional one.”
That total cost can’t just be passed on to consumers, Tavares said, because that would drive away middle class consumers who won’t be inclined to pay thousands of dollars more just to have an electrified powertrain.
Average transaction prices, which affect purchasing decisions for many of those middle class consumers, are already historically high, hitting a new record in November of $48,681, according to Kelley Blue Book. For an EV, that figure was $65,041.
If middle class consumers don’t buy so many vehicles, that means the market will shrink, Tavares said.
“If the market shrinks, we don’t need so many plants,” he said.
If middle class consumers don’t buy electric vehicles, that also undercuts the company’s climate goals, Tavares said.
“If we cannot sell EVs to the middle classes then their volumes will be small, and if the volumes are small, then the impact on the planet is limited which then somewhere destroys the sense and the purpose of what we are doing,” he said.
Introducing technology that’s 40% more expensive means the company needs to “work hard” to reduce costs, he said.
Electric vehicles:Ram 1500 electric pickup concept described as 'brutiful'
“If we stop working on cost, in this industry you go from hero to zero in three years,” Tavares said.
Increased costs for EV technology can’t simply be absorbed by the company because it will affect margins, Tavares said.
Stellantis needs to continuously optimize its manufacturing footprint, including the rate of use of existing plants, he said.
If the company has plant capacity it doesn’t use, it puts the company “in trouble,” trapping resources that are valuable for the company. If the company doesn’t “optimize” its cost structure then it can’t absorb additional expense of the technology, which would mean higher prices for consumers and a shrinking market, Tavares said.
Critics might note that despite the increased cost of EV technology, the bottom line for automakers such as Stellantis hasn’t fared too poorly in recent reporting. Although its full year earnings for 2022 have not been released, the company said it made $8 billion (8 billion euros) in net profit for the first half of the year, according to the exchange rate at the time of its earnings report. That was an increase of 34% from the same period the year prior. The company also reported double-digit margins in each of its five global regions.
Revenues for the third quarter of last year — the company only reports its full earnings, including its profit, twice a year — were at $41 billion (42 billion euros), based on the exchange rate at the time, an increase of 29% compared with the same period the prior year.
The former head of the UAW's Stellantis Department, Cindy Estrada, also noted last month, according to Free Press reporting at the time, that "companies like Stellantis receive billions in government incentives to transition to clean energy."
Aside from the potential impact of EV transition costs, the future for the Belvidere Assembly Plant has been a question mark for some time. Jeep Cherokee sales in the United States, for instance, have struggled, down 55% last year compared with 2021, according to the company.
Sam Fiorani, vice president of global vehicle forecasting for AutoForecast Solutions, noted the change in the SUV’s position in the marketplace.
“The current Cherokee made a big splash with its styling when it was introduced a decade ago, but competition has been fierce. The midsize CUV market has become very crowded as seen in the relatively slow sales of prominent players from Ford and Jeep,” he said.
Still, Fiorani said his group isn’t quick to permanently “close” the Belvidere plant because its future could be used in negotiations this year with the UAW.
“A few white-space products are in the plan over the next three years and one or more of them could be assigned to Belvidere, but even if that were to happen, Belvidere will be closed either while the facility is retooled or permanently. The odds of a new product finding its way into the plant are currently better than 50/50. Raising those odds are up to the union as much as it is up to Stellantis,” Fiorani said.
Contact Eric D. Lawrence: firstname.lastname@example.org. Become a subscriber.