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Carlos Tavares: Electrification is a choice of politics, not of industry

One year after the merger between FCA and PSA that gave birth to the Stellantis Group, the CEO Carlos Tavares took stock of the situation in an interview with Corriere della Sera, addressing various issues including those of the chip crisis and electrification. Let’s see some of the more interesting topics that have been addressed.

Tavares said he was satisfied with the first year at the helm of the new automotive group despite this 2021 was a complicated year due to the crisis brought about by Covid e from the problem of the supply of semiconductors. Added to this are the new challenges that electrification is bringing.

The Group is also working on the new one Strategic Plan which will be presented on first of March. On the chip crisis front, the CEO warns that the issues they will last until the end of 2022. However, starting next summer, the new production capacity of companies in the sector should begin to restore balance between supply and demand. According to Tavares, the semiconductor supply problem has cost the automotive industry 15-20% in terms of production volumes.

The CEO of Stellantis then talks about the “value strategy“, that is, the choice of focus on the value of cars rather than volumes, even with the risk of driving up prices. This is a strategy that Tavares had already followed when he was at PSA. In 2013-2014 the French group realized that it was not correct to sell off their products. Quality cars must be sold at the right market price.

Since then, we have made spectacular progress in the quality of our products and services. We are now on par with the best in the world. Sales growth is the result of this quality strategy, not a goal in itself.

The risk of this strategy, however, is to cut out the middle classes that cannot buy cars worth 30,000 euros. However, the CEO has clear ideas on this front.

There is a risk if we don’t reduce our costs. But it is also new technologies that drive prices up, especially electric technologies, which are 50% more expensive than those of heat engines.

Tavares showed himself very critical on the issue of electrification. It is not the first time that the CEO of Stellantis points the finger at the choices of the political world to accelerate the transition to battery-powered cars. In the interview, Tavares is very clear on this issue, especially on the approach that the European Commission is taking.

Obviously we respect the laws and therefore we will fight to be the best with the factors that are given to us, or imposed. But electrification is a technology of choice by politicians, not industry.

The CEO then adds that there could have been faster and cheaper ways to get to reduce polluting emissions of the cars. The method chosen, indeed imposed by politics, prevents car manufacturers from being creative to come up with different ideas.

Given the current European energy mix, an electric car has to travel 70,000 kilometers to offset the carbon footprint created by manufacturing the battery. Only then does it begin to widen the gap with a light hybrid vehicle that costs half as much as an EV. In the end, it is better to accept highly efficient thermal hybrid cars so that they remain affordable and provide immediate CO2 benefit, or it is necessary to have 100% electric vehicles that the middle classes will not be able to afford, while asking governments to continue to increase their budget deficits to provide incentives? This is a social debate that I would like to have, but for now I don’t see it.

Tavares then reiterates the problem of electricity costs that he had already faced in the past.

Our battle now is to minimize the impact of the extra 50% costs of electric vehicles. It means having average productivity increases of 10% per year in five years, while the automotive industry, particularly in Europe, reaches between 2% and 3%.

A situation that could lead some manufacturers not to make it. Tavares points out that in a few years it will be possible to find out which builders will have survived and which will not. The risk is also that of losing that slice of the market by the way that will not be able to buy an electric car. And on the issue of costs, Tavares speaks also incentives which should be maintained until 2025 even if the CEO doubts that governments can continue to subsidize the sale of electric vehicles at current levels as it is not sustainable from a budgetary point of view.

So let’s get back to social risk. It is the brutality of change that creates it. If states can accompany this transition with subsidies for five years, maybe we will get by. Otherwise, more social risks are made to the citizens as a whole.

In a few years, therefore, it will be possible to understand the social and environmental impacts of this race to electrification.

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