Tavares: Suppliers will need to eat cost to keep EVs affordable

Stellantis has laid out a bold vision for an electric future, but it doesn't plan on bearing the weight of this transition alone.

CEO Carlos Tavares is expecting his supply base to absorb some of the costs associated with producing electric vehicles to keep them affordable for the masses.

As Stellantis prepares to unveil its long-term plan this week after reporting US$15.2 billion in net income in its first year as a company last week, its ambitions will be underscored by this notion of sacrifice that will require suppliers to carry more costs in the years ahead.

Tavares' comments came on the heels of Stellantis making controversial changes last month to its North America purchase order terms and conditions for 2022 that can force suppliers to reduce prices whenever they achieve any cost savings.

Suppliers, he says, will have to be significant contributors in the quest to build attainable EVs.

"In this transformation of the industry, it's not only about the OEMs," Tavares said during an earnings call last week. "It's also about the supplier base and, as you know, there is significant competition in the supplier base and that is going to be also a very nice Darwinian transition period for our suppliers as much as it is for the OEMs. It means that we are in the same boat, we are in the same transformation."

Tavares doesn't see a way around suppliers accepting more of a cost burden as Stellantis prepares to release an extensive roster of zero-emission models across the globe before the end of the decade. Passing much of the additional premium to the consumer isn't something Tavares is willing to do, especially when Stellantis has set a goal of having electrified vehicles account for more than 40 per cent of its U.S. sales by 2030.

He said the cost of electrification is the "big gorilla in the room," with EVs being 50 per cent more expensive to produce than conventional models. The company, he said, risks losing the middle class while shrinking the consumer base if the vehicles get too pricey.

"Can they provide a value proposition with something that is head turning, something that has features that no one else has?" asked Ivan Drury, senior manager of insights at Edmunds. "Whether it be from a looks department or features department, or a blend of both. But there's a lot of action in the segment. I can't imagine them coming out with something boring. They can't come out with something status quo."

Globally, Stellantis has 34 electrified vehicles on the market — including 19 battery electric models — and it plans to launch 17 more by the end of 2023.

In the U.S., Jeep introduced the Wrangler 4xe plug-in hybrid in 2021, and it's about to release the 4xe variant of the Grand Cherokee this year. Dodge is expected to launch its first electrified model this year with a plug-in hybrid crossover that likely will be a sibling of the Alfa Romeo Tonale. The Tonale offers two powertrain options; one conventional and the other a plug-in hybrid that achieves 272 hp.

Looking further, Alfa Romeo is expecting to go all electric by 2027, and Chrysler plans to do the same by 2028. Chrysler will debut its first batery electric model by 2025.

"Electric vehicles in general tend to be higher priced because of the cost of the technology, but there are a number of ways to make sure that we're still pricing those vehicles to be accessible to the mainstream market," said Chrysler brand CEO Christine Feuell after detailing the marque's EV plans in January at CES. "And that's what we intend to do with all of the new products that we launch under the Chrysler brand."

Dealers are waiting to see whether the market will want all of these electrified vehicles from Stellantis.

The Wrangler 4xe has been a success story that has drawn a broader customer profile than what Randy Dye, chairman of the Stellantis National Dealer Council, was expecting. Stellantis said it sold 29,000 of the plug-in Wranglers in its first year.

Dye, who owns Daytona Dodge-Chrysler-Jeep-Ram in Florida, said the industry is still learning about who its audience is for electrified vehicles and how they're adjusting to the nuances of owning them.

"I think Tavares said it well: EVs are not an industry idea, it's a political idea," Dye said. "I want the free market to decide what kind of cars we should have, and then it's incumbent upon the OEM to deliver."

Dye remembers the days when Fiat Chrysler Automobiles stood back while the industry released scores of electrified models. He knew back then that the automaker eventually would jump into the fray, but he wasn't sure how it would execute.

"I've felt this coming for quite some time," Dye said. "Was it going to be something that we did as the former FCA, was it going to be in cooperation with somebody else? There was never any doubt about whether we were going to be doing something like this. I think the question was, with who? If you go back to the [Sergio] Marchionne comments, he envisioned a bigger company like this. I think this was the ultimate goal."