The Stellantis EV Plan: Is It Profitable?

Five months into its existence, Stellantis NV (NYSE: STLA) identified a key reason for its merger of French automaker Peugeot and U.S.-Italian giant Fiat-Chrysler: making electric vehicles that are actually profitable.

For decades, industry pundits have questioned the logic behind EVs. Until recently, car buyers seemed cool to battery-powered cars; regulators showed weak resolve; and the EV value chain -- from battery producers to charging suppliers -- was slow-moving.

Most analysts, however, say the EV market will substantially progress this decade, fueled by better EV offerings on dealer lots, considerable industry investment, and stiffer regulatory pressure, including potential bans on conventionally fueled cars.

Now, the question is whether established automakers actually make a business of selling zero-emission vehicles? Investors seem unconvinced, as Stellantis shares fell more than 3% Thursday after an aggressive EV plan was announced.

See Also: Stellantis Targets Electric Vehicles With $35.5B Plan: What Investors Need To Know

What Happened: Stellantis said Thursday that three things must take place in order to succeed:

• The company must bring down battery costs by 40% over the next four years, and an additional 20% after that;
• It must further cut costs in its entire business;
• Billions in forecasted “synergies” from the Stellantis merger, which ultimately combines 14 brands, must come to fruition.

To date, profitable electric-vehicle making has been largely elusive for global automakers. It took Tesla Inc. (NASDAQ: TSLA) several years to report black ink for a full financial year. Detroit car companies have long avoided over-investing, and Stellantis’s Chrysler unit has long bought credits from Tesla and others to meet emissions requirements because U.S. vehicles were so far out of compliance.

Stellantis CEO Carlos Taveras is committing to report double-digit operating margins by mid-decade. This ambitious target includes a commitment to spend $35 billion on EV technology, the majority of which will come from Stellantis’s balance sheet. Taveras said “it is fair to say there is an execution risk (but) we don’t see any reason” why Stellantis won’t succeed.

The company said it will stop buying emissions compliance credits from Tesla and others in 2022. Executives said the company already sees “parity” in Peugeot’s margins on EVs and conventional cars.

Photo: 2022 Jeep Grand Cherokee 4xe