The newest member of the global auto club, Stellantis NV, is racing to catch the industry’s zero-emission transition and avoid becoming a transatlantic dinosaur.
More than two months after the merger between Fiat Chrysler Automobiles and French rival Groupe PSA, a new strategy still is being developed. What’s clear now is that PSA brings a vertically integrated supply-chain strategy competitive with other automakers. And FCA delivers its partnership with Google parent Alphabet Inc.’s self-driving technology business, Waymo LLC, widely thought a leader in the autonomous space.
“To a certain extent, PSA was coming with a lot of good things, good assets in terms of CO2 emission reduction, and FCA was coming with great things in terms of autonomous vehicles,” Stellantis CEO Carlos Tavares said during an earnings call earlier this month. “And now all of this is part of the assets that the family can enjoy.”
The evolving strategy implicitly borrows from the first automotive century’s golden age, when automakers from France and Germany to Japan and the United States controlled key parts of assembly and component production in what the industry called “vertical integration.” To navigate the transition to the EV age — and, later, self-driving vehicles — legacy automakers like Stellantis and its rivals are adapting the concept.
Competitors like General Motors Co. are aiming to sell only EVs by 2035, while other automakers like Ford Motor Co.’s European operations, Sweden’s Volvo Cars Ltd., Britain’s Jaguars Cars Ltd. and others have set timelines for an all-electric lineup in the near future.
Stellantis has yet to give its internal combustion engines an expiration date across its 14 brands. But Tavares says the company is going “full-throttle” on full EVs as more governments place bans on gas- and diesel-powered vehicles, including hybrids. Stellantis will have 39 electrified models for sale by the end of the year.
The new automaker is the second-largest seller of EVs this year in Europe behind Volkswagen AG with 17.7% market share, according to market research firm Guidehouse Insights.
PSA brings two EV-dedicated platforms — eVMP and eCMP — to be used worldwide across Stellantis platforms, likely extending to small Fiat cars and smaller-sized Jeeps. It also has three major joint ventures to produce electric motors, transmissions for mild- and plug-in hybrids and battery cells. That capability, Tavares says, gives the company control over the cost, quality and performance of major components’ engineering and manufacturing.
“Few other OEMs have all of this in place — in 180-degree contrast to some investors’ views,” Morgan Stanley analyst Harald Hendrikse wrote in a report earlier this month.
PSA last year announced the Automotive Cells Co. with French gas and oil company Total SE and its battery manufacturer Saft Groupe SA. Development of the lithium-ion batteries is happening in France, and production should begin by the end of 2023. It’s not clear if the collaboration could extend to the North American market.
“The battery is the key component in the future, which makes the car more attractive or less attractive,” said Ferdinand Dudenhöffer, a professor of automotive economics at the Center for Automotive Research at the University of Duisburg-Essen in Germany. “They can better do the transformation using its own manpower, own facilities and at the moment possibly the scales. It’s the best strategy to have a stronger vertical integration than outsourcing like the past 30-40 years.”
And with most battery production being done currently in Asia, governments are supporting domestic production with incentives to avoid job cuts in the transition: French and German public authorities, for example, are supporting Automotive Cells with $1.6 billion for the project representing an almost $6 billion investment. Two possible manufacturing sites could grow to 32 gigawatts of capacity each.
Stellantis isn’t alone. GM is working with LG Chem Ltd. on a $2.3 billion battery cell plant in northeast Ohio set for completion by 2022. Volkswagen this month said a joint venture with Northvolt AB will produce batteries in Germany by early 2024. Ford is examining the possibility of manufacturing its own batteries, too.
“The company that wins the EV or AV car race isn’t going to be a company, but companies, merging several disciplines to produce these advanced vehicles,” said Karl Brauer, executive publisher at auto information website CarExpert.com. “Having this integration is huge for every company, including Stellantis. It’s going to allow for faster movement and for them to be specialized in an area that is critical for distribution.”
If consumers are willing to buy EVs, the limiting factor for production will be the lack of battery-cell capacity, said Sam Abuelsamid, Guidehouse’s principal e-mobility analyst: “What you don’t want to do is to be standing in line at the battery supplier, fighting to get a share of the batteries.”
PSA in 2018 also formed a joint venture with Japan-based Nidec Corp. to build electric motors at its Trémery engine plant in France with the expectation of manufacturing hundreds of thousands of the components. Production is expected to begin by the end of next year.
The company has two joint ventures with Belgium’s Punch Powertrain NV for production of its electrified transmissions for Stellantis and other automakers at Stellantis’ facility in Metz, France, for next-generation hybrids. Production is expected to begin in early 2023.
In electrification advancements, Tavares points to the work FCA has invested with Archer Aviation Inc., an electric vertical take-off and landing aircraft startup. The automaker has lent its supply-chain, design and engineering know-how to help the manufacturer launch production in 2023. But Tavares sees “offensive” value in the partnership contributing to the development of lightweight, fast-charging batteries and better energy management systems that also can help EV development.
On autonomy, though, the automaker is taking a greater outsourcing approach, leveraging FCA’s collaboration with Waymo. Last July, the companies extended their partnership from FCA supplying Chrysler Pacifica Hybrid minivans to be outfitted with Waymo’s technology for its robotaxi service in Phoenix.
Waymo agreed to work exclusively with FCA on level-four autonomous light vehicles for commercial delivery customers, using Ram vans. Waymo also is FCA’s exclusive partner in providing level-four autonomous technology capable of doing all driving tasks under certain conditions across its portfolio.
“We are going to execute this strategic partnership and make those autonomous vehicles with the Waymo software technology,” Tavares said, “which is the best way, of course, to learn … and of course, to come up with the appropriate projects that will be announced shortly.”
Electrification is more imminent than autonomy, making it less pressing for manufacturers to design their own systems, Abuelsamid said: “There is less differentiation there once these systems are matured. It’s more of a commodity product.”
Despite working with Waymo, Tavares emphasized the need for tech talent in-house to decouple software development from hardware lead times and to keep products up-to-date through over-the-air upgrades. A mid-size plug-in hybrid luxury sedan has 80 million lines of code — roughly three times that for a mid-size airplane, he noted.
“It’s about making sure that we scale up in the way we use the data and the way we use artificial intelligence,” Tavares said.
For now, Jeep is leading the way for the company in rolling out level-two “hands-off” driving on approved roadways late this year on the new Jeep Grand Cherokee and Wagoneer models. The technology can drive at all speeds, center the vehicle in a lane, slow the vehicle in tight curves, resume control after driver override and verify the driver is paying attention to the road, according to Stellantis.
GM and Ford offer similar features with their Super Cruise and Co-Pilot360 technology, respectively, on certain vehicles. Companies like VW are budgeting more than $33 billion to develop such software in-house in the next five years, Morgan Stanley’s Hendrikse observed.
“Does STLA have the resources to compete?” he wrote, using the ticker symbol for Stellantis. “Will any of the OEMs even succeed? We continue to believe a more limited technology partnership strategy is both lower risk, and more likely to succeed.”