SA Group CEO Carlos Tavares already had a busy 2020 ahead of him when the COVID-19 pandemic hit. He and his teams were preparing for a merger with Fiat Chrysler Automobiles to create Stellantis, the world’s fourth-largest automaker by volume, and to roll out a full slate of electrified models to meet Europe’s new emissions standards.
Tavares, 62, was able to navigate these stormy seas, keeping the merger on track, growing PSA’s electrified sales substantially and outperforming rivals by recording an operating profit in the first half despite lockdowns around the world.
Tavares spoke with Automotive News Europe Associate Publisher and Editor Luca Ciferri and News Editor Peter Sigal via video chat about how these challenges were overcome and what is ahead for Stellantis. Here are edited excerpts.
Q: You have said the COVID-19 pandemic boosted the rationale to create Stellantis. Have there been any side effects from the crisis on the agreement?
A: It has been a very long process with a lot of hard work. From the signing [of the memorandum of understanding] to closing, it’s roughly 15 months of work in terms of preparing filings related to all the different takeovers and administrations, the bankers and antitrust authorities.
But the most incredible part of this process is that we are on time and that the teams kept the pace under COVID lockdowns. We have been able to work remotely and collaboratively. We have had more than 600 people working intensively on this process since December 2019, which was the signing date, and now we are preparing for the closing in the course of the first quarter of 2021. And while we are doing this, both [FCA CEO] Mike Manley on the FCA side and myself on the PSA side have been managing our companies to make sure that we overcome all the challenges of those lockdown periods so that we can start Stellantis with a good financial position.
Volkswagen accounts for roughly a quarter of European sales with just three volume brands. Stellantis, which year to date is at a combined 21 percent share, will have Citroen, Fiat, Opel/Vauxhall and Peugeot. Will you have too many brands in the volume sector?
Stellantis will be very strong in Europe — not exactly the size of the Volkswagen Group, but quite close. I have a huge amount of respect for Volkswagen because they are doing a fantastic job. They are taking many bold decisions and moving forward very strongly on electrification, which makes them a fantastic rival for us. We understand they will be ahead of us in Europe, but we will not be very far behind, and we will try to compete in the most efficient way, with a different approach to our business model, but also with a double-digit brand portfolio, as they have.
PSA signed an agreement with FCA ahead of the merger to help it begin working on PSA platforms and powertrains for small cars. How much will this technology transfer agreement count in the increase of expected Stellantis synergies — to €5 billion ($6 billion) from the €3.7 billion ($4.5 billion) originally estimated?
It’s not the most significant part [of the increase], although it will certainly contribute a certain amount.
So how did we move from €3.7 billion to €5 billion of synergies on a yearly run rate? Very simply: by listening to the proposals of the 25 cross-company teams we created to prepare for the merger, within a strict legal frame. The most exciting sign [for the success of the merger] is that on a bottom-up basis, people were getting along very well, were very excited about the prospect of creating a larger family, were offering proposals.
So for me, the most important part is not the amount of synergies. It’s roughly $20 to $25 billion of value creation from this deal. It’s a big amount of value creation, as you can imagine — if we execute properly, of course.
Conversely, the one-time implementation cost for achieving those synergies has risen from €2.8 billion ($3.4 billion) to €4 billion ($4.85 billion). Is this related to write-offs in revised FCA and PSA business plans ahead of the merger?
Well, if that happens, you will see it in the financials of both companies, and of course, of Stellantis at one point. If something has to be done in that area, the CFOs will make it clear and transparent in the financials of the different entities.
But of course, the implementation costs are real. The magnitudes are something that we will be eager to optimize at any point in time, which is in the mindset of the people both on the FCA side and the PSA side.
Efficiency and effectiveness are something I can feel on the two sides of the Stellantis family.
I can feel that there is this great business sense that has been the result of the leadership from Mike Manley and, prior to Mike, from [the late FCA CEO] Sergio Marchionne, and I think it has also been the DNA of PSA over the last few years.
With the strong and profitable presence Stellantis will have in North America because of FCA, is there still a need to bring the Peugeot brand there?
As long as we are competitors, which means up to the closing, my answer will be yes. Our plan is to bring Peugeot to North America. This being said, our [PSA] North American team in Atlanta that is preparing for the comeback of Peugeot in the U.S. market is bringing us many ideas in terms of logistics, in terms of maintenance, in terms of the distribution model, in terms of marketing communication, as we have no legacy. Whatever we decide in the Stellantis world, all of those ideas will improve the way we go to market and the way we run the business.
I was working in the United States for a while [as head of Nissan North America], and I know how competitive the market is, and I am very humbled vis-a-vis the level of competitiveness it takes to grow a profitable presence there. This is exactly what FCA has been doing, so my hat is off to the FCA team for that.
The U.S. has been FCA’s profit driver, focusing on pickups and the Jeep brand. Is there room for FCA to benefit from the success you have brought to your businesses in Europe?
The first answer to your statement, which is very true, is simple: If it’s not broken, don’t try to fix it. But we know that in our industry, when you have the sense that everything is going well, it’s exactly the moment where you need to challenge yourself and look for additional efficiencies and achieve a better performance. And the fact that we are bringing the two companies together may also be an opportunity to be challenged on the things that we could even do better, and this is true for the Americas as much as for Europe.
PSA has been very successful in Europe, but that does not mean that we are doing everything very well. I think Mike [Manley] would say the same for North America.
Are you happy with PSA’s emissions performance?
What makes me happy is that my electrified-vehicle sales mix is going up quite fast, which means that we are in a “pull” mode in terms of selling electrified cars, which is important for the profitability of that kind of technology. We are the No. 1 carmaker in terms of CO2 emissions reduction rate in Europe, which means that we were able to bring the right technologies and the right pace to the market to support this very important trend that is requested by the societies in which we operate.
I’m also happy with the strategy that we put in place years ago. All the technologies and the products we are selling right now, whether pure EVs or plug-in hybrids, were decided in 2014. At the time we were coming from a year [2013] when our operating profit margin rate was minus-2.8 percent. So in the first year of the turnaround, we were able to decide relevant investments on our core technology that brought all the electrified technologies and multi-energy platforms that we are using successfully now.
Now we are preparing a dedicated EV platform, which we call eVMP, that will be used from 2023 or 2024 onward. We recognize that from that period the sales mix will be such that purely electric vehicles deserve a dedicated state-of-the-art platform.
As CEO of Stellantis, where will you spend most of your time?
After closing, the fair answer is hopefully not in a plane. But of course there would be some travel — mostly to Turin, Amsterdam, Paris, Detroit, Sao Paulo, Russelsheim. All of this is part of a global company.
Of course we would have significant digital interaction, but human interaction would also have a significant role to play. This is about management, about expressing some kind of direction and convincing people that what we are doing makes sense, inspiring people to go in one direction or the other direction, and that means human interaction.
We have learned through two successive lockdowns in Europe that we can run a car company in a crisis mode using digital tools. As long as a sense of team spirit is created by having human interactions, then digital communications tools are appropriate, and that is going to reduce the burden of travel, jet lag and time differences.
On the personal side, what have you missed most during the coronavirus lockdowns?
I’m a privileged guy. I can continue to run my car company remotely with my great team. Of course, living in France, not being able to see my grandkids in Portugal is painful. [Lockdowns were] something that needed to be done because it was the best solution we could have in our hands to fix the sanitary problem. The second lockdown is keeping the economy running at a certain rate — not 100 percent, but much better than the first lockdown, which means that the social and economic consequences of the second lockdown will be much smaller. It demonstrates that we are learning, because at the same time we have a better knowledge to limit the effects of the pandemic.
Overall, the most painful thing was not being able to see my grandkids and my kids during lockdown. Otherwise, I cannot complain.