Stellantis Warns BEV Cost-Cutting Will Squeeze OEMs and Suppliers

Battery-electric vehicle producers are in a race to cut costs that will see their, and also their suppliers’, margins squeezed if they want to survive in the coming market “chaos.”

That’s the view of Stellantis CEO Carlos Tavares during a webcast question and answer session as part of the 40^th Annual Bernstein Strategic Decisions Conference. He highlights the industry’s need to sell BEVs at the same price of internal-combustion vehicles while absorbing the extra costs of making them, currently at up to half as much again more than their gas-burning equivalents.

Tavares says: “Affordability of vehicles is the key success factor right now. This means you have to be able to sell BEVs for the same price as ICE vehicles, and that is where the challenge is for everybody. That’s because BEVs are 40% to 50% more expensive in production costs than ICE vehicles.

“So, we are not in a race to transition but in a race to cut costs. And if you don’t absorb the additional production costs, either you are outpriced by competitors and lose market share or are going to create a significant social impact somewhere, either in your company or in your suppliers.

“This will place a big, big burden on our suppliers and if they cannot contribute for any reason in this cost-cutting then they are going to be in trouble. Five or 10 years down the road, there will be a significant sorting out between the ones that were able to absorb the 40% to 50% extra costs and the ones that couldn’t, both OEMs and suppliers. We see in Europe some Tier One suppliers with very well-known names are getting into trouble for this reason.”

However, Tavares believes it will be possible to sell a BEV for exactly the same price as an ICE vehicle comparatively soon, although not without some serious pain for some in the industry. He says: “I would say this would happen in around three years.”

Meanwhile, consumer demand is falling where governments in Europe have cut incentives for people to switch from ICE to BEVs. Tavares points to nations like Germany, which have seen a marked drop-off of BEV sales when grants to consumers are stopped.

“BEV sales all depend on the support that governments are giving the consumer to make it affordable. Even at €23,000 ($25,000), a B-segment hatchback EV is much more expensive than an ICE (costing) about €15,000 ($16,306).

“When the governments stop incentives, the demand doesn’t just drop, it collapses. There is something in the mindset of the consumers that says: ‘If you don’t help me, I’m not going to help you on the global warming story.’

“Let me give you examples: France, 15% BEV sales mix; Spain, 4%; Italy, 2%; Scandinavia, 40%. This is a clear correlation between incentives and the sales orders. The level of brutality and chaos in the industry is too high and something is going to break somewhere.”

Tavares also believes there are some markets, such as Brazil, where switching to BEV transport will never make any sense. He points to the use of flex-fuels in the country that provide the same ecological credentials as BEVs at a price people can afford thanks to Brazil’s plentiful supply of natural sustainable resources to produce the fuels.