EV gameplan needs to leverage our internal combustion business

European-based automaker Stellantis (formerly Fiat Chrysler Automobiles) saw the writing on the wall.

The automaker that includes such brands as Jeep, Dodge, Peugeot, Fiat, and Alfa Romeo was lagging competitors like GM (GM), Ford (F) and Volkswagen (VWAGY) when it came to announcing big plans for an EV transformation that is of rigueur in the automotive world.

Stellantis (STLA) decided it was time to catch up, and with that the company revealed its “Dare Forward 2030” plan at its Strategy Day earlier this week. Among other things the company wants to achieve by 2030:

  • Global BEV (battery electric vehicle) sales of five million units, reaching 100% of passenger car BEV sales in Europe, and 50% passenger cars and light-duty trucks in the US

  • Introduce 75 BEVs, “including the Jeep brand’s first 100% battery-electric SUV launching in early 2023, followed by the Ram ProMaster BEV later in 2023 and the Ram 1500 BEV pickup truck in 2024”

  • Double global net revenues to 300 billion euros

  • Cut carbon emissions by 50% (and go carbon net zero by 2038)

These goals are basically inline with what other global automaker competitors are planning. At the company’s EV day back in July 2021, the company announced it would spend $ 35.5 billion, or 30 billion euros, by the end of 2025 to expand its EV offerings. Stellantis did not reveal any additional new funding to complete its Dare Forward 2030 initiative.

But with competitors like Ford aggressively changing their business model this week, separating its ICE (internal combustion engine) business from hits EV business (and boosting EV spending to an astonishing $ 50 billion from $ 30 billion through 2026), the question remains whether Stellantis is doing enough to be competitive in the EV space.

Yahoo Finance had the opportunity to speak to Stellantis CEO Carlos Tavares at an intimate gathering this week.

Carlos Tavares Chairman of the Management Board of PSA group and CEO of Stellantis, Carlos Tavares answers journalists & # 39;  questions after a private visit at the plant of Dutch multinational automotive manufacturing company Stellantis, part of the PSA group in Douvrin, on July 2, 2021. (Photo by DENIS CHARLET / AFP) (Photo by DENIS CHARLET / AFP via Getty Images)

Carlos Tavares Chairman of the Management Board of PSA group and CEO of Stellantis, Carlos Tavares answers journalists’ questions after a private visit at the plant of Dutch multinational automotive manufacturing company Stellantis, part of the PSA group in Douvrin, on July 2, 2021. (Photo by DENIS CHARLET / AFP) (Photo by DENIS CHARLET / AFP via Getty Images)

Two major pillars

While many manufacturers are going all-in on the EV transformation, Tavares says key to the change is “the two major pillars” of electrification and software, which is very new for the legacy automakers, but areas that they must invest in to compete.

Tavares is a realist, however, and does not discount the value of the legacy ICE (internal combustion engine) business.

“It is absolutely true, that we are funding the investments for electrification with the money coming from the [ICE business], “Tavares says.” That’s absolutely true. That’s exactly what we want, that’s why we can put $ 35 billion on the table. “

Automakers need to be smart, according to Tavares, because in order to effect change the industry has to look at costs, not just for the automakers, but for middle class car buyers across the globe. And that means replacing older, dirtier cars with newer vehicles that may still use gas engines but emit less than half the pollutants and cost much cheaper than EVs at the moment.

Compromise in that regard is one position for Tavares. The other position, where fossil fuels are completely banned, is not something Tavares is ready to accept yet.

“Dogmatism has taken the lead, rather than thinking and looking at what is the best deal for society,” Tavares says. “The number of EVs you are going to be able to sell is very much driven by the household income of people that can pay a higher price for the EVs … The global warming issue is limited by the household income per capita, which then if you do not complement this strategy with a strategy where you take the clunkers out of the road, and replaced by modern vehicles, even if they are less electrified, but you keep their affordability, then you are missing something. “

Ford’s big gambit was ‘very well played’

As for Ford and CEO Jim Farley’s huge gambit to split the business into two units – EV, and everything else like the ICE business – Tavares did not hide his cynicism, seeing it as a move that was not purely about Ford’s transformation.

“[Ford’s move] was very well received by the market. Very well, very well played. It was a good play, “he says. Tavares continues:” The legacy carmakers have been creating wealth for the last century. And suddenly, the fact that they are legacy is a penalty for them, because they, they have more constraints to move than the other guys, then that’s fine. We’ll stop thinking about that. And we’ll start moving. But then the society in which we operate needs to accept the fact that when the car industry starts too fast, if there is some kind of lead collateral damage, then it’s because we need to move. “

Collateral damage here is what happens to suppliers, dealer networks, and even service providers who are not equipped or knowledgable on how to adapt to an EV future. Tavares says governments and NGOs want the automakers to move to electrification immediately, but do not want them to “create a mess,” when the electric reality finally arrives.

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Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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