As the automotive industry undergoes a seismic shift from internal combustion engines (ICEs) to electric vehicles (EVs), Stellantis N.V. CEO Carlos Tavares offers a stark Darwinian perspective: in this evolving landscape, only the strongest will survive. This scenario harkens back to the early 20th century, a period marked by a drastic reduction in automobile manufacturers, from 253 in 1908 to just 44 by 1929, with Ford, General Motors, and Chrysler dominating the market.
Today, the industry is bustling with a mix of established heavyweights like Tesla and emerging players such as Rivian, Fisker, and Lucid. But Tavares, whose company houses brands like Chrysler, Citroën, and Jeep, suggests that legacy automakers could be the ones best equipped for this transition.
“The guys using the legacy business to fund the future are going to be in the best position,” Tavares stated during Goldman Sachs’ 15th Annual Industrials and Autos Week. This statement underlines the significant role that profits from traditional gasoline and diesel vehicles play in financing the shift to electric and alternative fuel technologies.
However, Tavares also acknowledges the challenges ahead. With rising interest rates making capital more expensive, many EV startups might find themselves in a tight spot, similar to the plight of historic brands like Nash and Studebaker. Wedbush analyst Dan Ives echoes this sentiment, pointing out the increased financial pressures on EV manufacturers.
Profitability, especially for more affordable EVs, remains a crucial concern. Tavares emphasizes the necessity of making profits on $25,000 cars to avoid excluding middle-class buyers, a demographic crucial for widespread EV adoption. “You have to be super sharp on cost,” he advises, highlighting the importance of competitive pricing to remain profitable.
The political landscape, particularly the upcoming U.S. presidential and European Parliament elections, could significantly impact the pace of EV adoption. Policies like the Biden administration’s ambitious fuel-economy standards could hasten the shift to EVs, whereas a potential Republican win could see a rollback of these targets.
In Tavares’ view, the time frame for potential collapses among automakers not profiting from EVs could range from two to six years, depending on regulatory environments and market pressures. “If it’s purely linear… they are going to put themselves in trouble quite quickly,” he warns.
As the automotive industry navigates these uncharted territories, Tavares’ insights underscore the vital importance of strategic adaptation, financial prudence, and the ability to leverage existing strengths in the race toward electrification. For investors and entrepreneurs in the automotive sector, understanding these dynamics will be key to navigating the future of this rapidly evolving industry.