Major Carmaker Admits Costs Of Building EVs Are Way Too High

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Stellantis CEO says the carmaker is absorbing most of the costs but this can't go on forever.

Stellantis CEO Carlos Tavares has been very vocal about the future of the company's brands and the industry's shift to electrification. Already we have seen the results of his leadership with the imminent arrival of crucial electric cars such as the Ram 1500 EV and a fleet of products from Chrysler. Over in Europe, cars such as the Fiat 500e are already laying the groundwork for the group's global electrified network.

Stellantis has been a bit slow to the punch compared to the likes of Ford, Tesla, and the Germans but at the same time, Tavares has pointed out that political influence has manipulated the electric revolution altogether. He criticized lawmakers for essentially bullying carmakers into transitioning their offerings into electrified products at an accelerated pace. This is partially why we are seeing such exorbitant prices from some brands.

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Speaking to investors of the Stellantis last week, Tavares now adds that it is also up to suppliers to aid in keeping the final cost of electric cars to a minimum and goes as far as to describe the cost of EVs as "the gorilla in the room".

He says, "We can expect electrification to represent an additional total production cost of around 40 to 50% against the conventional vehicle. There is no way we can transfer 40 to 50% of the additional total production cost to the customer."

He adds that it will be very difficult for Stellantis to maintain the prices it is currently charging for its cars, "because we will go in the red and we will have to restructure the company. So the only way to move forward is to absorb those 50% of additional costs."

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Tavares expressed how important it is for Stellantis to ensure that a double-digit operating margin is maintained. To do this, it has to increase its productivity gains by 10% on an annual basis for the next half a decade. This is up from the usual two to three percent increases. One way to resolve this is by executing a new distribution model that would get cars to the consumer even faster.

Tavares is insistent that Stellantis is doing what it can to keep costs down but says that this alone is not enough as 85% of a car's value consists of the parts sourced from its supplied components. He adds, "We need our suppliers to contribute. There is no surprise that when you have to absorb 50% of additional costs coming out of electrification, your suppliers need to be a significant contributor for this additional productivity."

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