Carlos Tavares, executive director of the Stellantis group, affirms that the higher production cost of electric cars compared to thermal models will affect the profits of the manufacturers during the next five years, forcing the brands to find new methods to compensate said costs. additional.
“Electrification symbolizes an additional production cost of around 40 to 50% compared to a standard car. There is no way we can pass on 40-50% additional costs to the buyer. So, the only strategy to move forward is to absorb them, “says the executive, known for his aggressive cost reduction plans at the head of PSA (Peugeot-Citroën, Opel), a group that merged in 2021 with FCA (FIAT-Chrysler) to form Stellantis.
For the conglomerate to maintain its current operating margin, measures such as a new distribution model will be taken. Last summer, the group canceled the contracts with its dealers in Europe to implement a new direct sales model, which will give it greater control over the process and allow it to reduce costs.
Thus, the dealers will become simple agents of the brands, which will establish the rates, incentives, and commissions of the sellers. This transformation should allow a reduction in prices, which will also be clearer (they will not vary from one dealer to another), thereby improving customer satisfaction.
Stellantis will restructure itself to adapt its business model to the new times
In parallel, Tavares is also pressing for suppliers to contribute their grain of sand. “We would like our suppliers to contribute”. According to the manager of Portuguese origin, the next few years will be a “Darwinian transition period” for the automobile industry, since all its members will have to demonstrate their competence. “It will be mainly a race for cost reduction in the next five years to protect affordability […]”.
Most experts agree that the production costs (and with it, the profit margins) of thermal and electric vehicles will be equal throughout the second half of the decade, something that will be possible thanks to economies of scale, growing synergies, and the gradual reduction in the price of batteries.
