Auto Makers Are Racing to Catch Tesla. Stellantis CEO Says Not So Fast. - Barron's

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Carlos Tavares.
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Stellantis CEO Carlos Tavares has a warning regarding electric vehicles. He isn’t sure the EV cost equation makes sense.

Tavares said in an interview with Reuters published Wednesday that while governments and investors are pushing auto makers to speed up the shift to EVs, consumers won’t be able to absorb the higher costs. That could force car companies to either accept smaller margins or sell fewer vehicles. Either one could lead to pressure for cuts that might eventually threaten auto manufacturing jobs.

Stellantis (ticker: STLA) isn’t a household name, but it is an automotive giant, so Tavares is an authoritative voice. The company includes Chrysler, Fiat and Peugeot, and is similar in size to Ford Motor (F) in terms of market capitalization.

Tavares’s comments are a downbeat take amid a lot of promising EV-related news. Tesla (TSLA) is the first auto maker with a market capitalization of more than $1 trillion. It hit that level back in October amid strong third-quarter earnings and delivery results. Tesla’s vehicle deliveries are poised to rise roughly 80% in 2021, while EVs take an increasing share of new-car sales across the globe.

Still, EVs generally cost more than a traditional car. A Tesla Model 3 starts for roughly $40,000, while a Honda Accord starts at about $25,000. That’s one point of comparison, although the cars’ features are different, and a high-end Accord can cost up to $40,000. Model 3 cars get more expensive depending on vehicle configuration as well.

Battery costs are a big reason that EVs are more expensive, but battery costs are falling, dropping roughly 90% over the past 10 or 11 years, according to Bloomberg New Energy Finance. Battery costs, however, might rise a couple of percent in 2021 because of higher prices for raw materials.

Over time, EVs will need to keep getting less expensive to penetrate more segments of the automotive industry, such as compact cars. If they don’t, then Tavares’ dire scenario could play out with auto makers desperate to cut costs any way possible in the face of external pressure to shift quickly to EVs.

It isn’t clear if Tavares comments were a call to accelerate cost declines, a warning to the industry that EVs won’t win in the long run, or an argument that a rapid transition will be problematic. Stellantis didn’t respond to a request for clarification.

Stellantis has laid out its own goals for vehicle electrification. It wants 70% of its sales in Europe, 35% of its sales in China, and 35% of its sales in the U.S. to come from electrified vehicles by 2030. The company plans to spend more than $30 billion on EV assembly capacity, vehicle development, and battery manufacturing between now and the end of the decade.

Those goals are about as aggressive as at any other traditional automaker. Tavares said in the interview that he is trying to smooth the path for Stellantis by increasing productivity far faster than is normal for the industry.

Shares of Stellantis were up 5.4% in midday trading Wednesday. The S&P 500 and Dow Jones Industrial Average were up about 1.7% and 1.3% respectively, bouncing back after Tuesday Covid- related selloff.

Write to Al Root at allen.root@dowjones.com

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