By on July 29, 2020

Carlos Tavares, CEO of Groupe PSA, believes the secret to mainstreaming electric vehicles may have something to do with the industry being able to sell them at a profit. The French automaker’s boss has expressed concerns about a segment that’s almost entirely propped up by taxpayers — sounds likes someone might have taken a business course before running a multinational automaker!

It’s not that EVs are bad; they’re just too novel to be a bargain. Tavares believes the high development costs associated with newer technologies have effectively made electric cars money-losers without financial assistance from the government. He thinks their ultimate success (or failure) hinges upon finding a way to make them profitable without being perpetually subsidized by the government while reducing the amount of raw materials required for battery manufacture. As a bonus, he hinted that automakers might have juicer R&D budgets if they prioritized spending  hopefully accelerating the process of making EVs a little easier on everyone’s bank account.

“Affordability will be the challenge for the next five years in terms of costs,” Tavares told the Financial Times this week. “Those breakthroughs need to come from real estate, distribution costs, sourcing all the components of cost structure will have to be combined to bring this affordability.”

From FT:

Carmakers and consumers in the EU benefit from about €12,000 in subsidies for each electric car through incentives and other measures, he said.

“This is the gap that we need to close if we want to offer this to the biggest possible number of citizens, which means all sorts of cost reduction needs to be addressed to face this challenge,” Mr Tavares said.

PSA, which moved its headquarters from the Champs-Elysées to the outskirts of Paris to save money several years ago, intends to make even more radical moves by scaling back an office network vacated during the pandemic as staff worked from home.

This is something we’re seeing across the globe. Now that pandemic lockdowns have proven swaths of employees can work remotely, employers are beginning to wonder why they’re paying for spaces to house them during the day.

“We are going to shrink our real estate footprint,” Tavares explained. “This will represent a benefit for employees. They will spend less money on transportation to go back and forth, and will have a better work-life balance.”

While PSA intends to retain locations for teams to meet in a physical space when necessary, the current plan is to scale back wherever possible and adopt a shared-space model for employees who can’t stay home forever. While some studies claim this increases burnout rates (as staff often find it difficult to decouple from working), increased risk of depression, and overall losses in workplace synergy, it’s often cheaper to deal with minor consequences and not to pay for another cubicle.

Whether the cons of working remotely outweighs the pros probably has a lot to do with the job in question and how its handled by the company. The only thing that seems crystal clear is the opportunity for savings, which PSA seems to know a thing or two about. It was one of the few manufactures that went through the first half of 2020 and still managed to turn a profit  banking €595 million while the rest of the industry languished.

Those funds will be recirculated into its EV development program. Even though Tavares seems skeptical of battery-driven automobiles’ ability to thrive independent of government assistance, they’re also forcing the issue. Automakers hoping to sell in places like Europe and China are effectively forced into bending over backwards to comps with emission rules or be fined out of existence. That’s one reason why you’re seeing so much talk about electric cars of late, as well as examples that were rushed out the door before the were ready  it’s the only way many brands can meet the European threshold of 95 grams of carbon-dioxide per kilometer that’s coming in 2021.

This is also why we’ve seen so many sizable crossovers previewed as BEVs of late. Their heft makes for a terribly energy-inefficient product, but their lack of a tailpipe makes them exempt from stringent environmental mandates that rarely bother to consider where the electricity comes from. Making SUVs rely on battery power might be the only way to continue selling them. The bigger issue, however, remains in finding a way to make EVs profitable without government help in the short term. Even Tesla owes a substantial amount of its current profitability to selling off carbon credits to automakers building internal combustion models, and it’s the gold standard for how to run an electric vehicle firm.

[Image: Frederic Legrand COMEO/Shutterstock]

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15 Comments on “PSA Head Says Electric Vehicles Too Dang Expensive to Build...”

  • avatar

    This Carlos sounds like he just might know what he’s talking about.

    • 0 avatar

      Yeah. Too bad another Carlos – Ghosn – saw him as a threat and drove him out of Renault management. Nissan, Mitsubishi, and Renault might have been in better shape with him instead of Ghosn.

      He didn’t even mention the rare earths and other materials bottlenecks facing battery makers, let alone the cost of building the kind of recharging infrastructure that gas stations now have.

      What his comment means is that there won’t be an electric Wrangler or Ram pickup, at least not in serious numbers, after PSA and FCA combine into – what was that name again?

      • 0 avatar

        “He didn’t even mention the rare earths”

        That’s because “rare earths” are not rare. Nickel is the big thing they need now and it looks like a new mine is opening in northern Ontario. It’s the laws of supply and demand at work. If someone needs something and the price gets high because of scarcity, someone else gets a financial incentive to start supplying whatever it is. Cobalt was an expensive material, so in that case, they started to eliminate it from the batteries. Supply, demand, and rapidly advancing technology.

        • 0 avatar

          They need Cobalt and Lithium, which are considered rare earth metals, but technically are not.

        • 0 avatar

          If he mentioned them, he would have called them rare earths, because that’s the generally accepted term. Since they’re not concentrated in ores and have to be processed from other ores, they have two features of rarity: limited availability in usable form and high price. That’s a bottleneck.

  • avatar
    SCE to AUX

    “…a segment that’s almost entirely propped up by taxpayers”

    “Carmakers and consumers in the EU benefit from about €12,000 in subsidies for each electric car through incentives and other measures, he said.”

    BS. Here in the US, the Federal subsidy for Teslas expired a year ago, and they’re setting sales records and turning a profit. It can be done.

    The Eurocrats have created a highly co-dependent cycle of EV poverty with such extravagant subsidies, so it’s no surprise they think they can’t live without them.

    Carlos sounds like a guy who realizes his company can’t compete on EVs, and isn’t willing to spend the billions it takes to do so. Those billions help reduce battery and mfg costs, and enables a mfr to produce enough volume to make a difference.

    So, he blames the very subsidies that he would have cheered earlier. Echos of Sergio – PSA and FCA will make a good pair complaining about the EV market with one voice. Meanwhile, Tesla is building another Gigafactory in PSA’s backyard.

    • 0 avatar

      Workers have also discovered that setting up their “home office” is not a zero expense effort either. Depending on their home situation, usually an apartment for the clerical staff sent home, it can be damn difficult to rope off a quiet area to work. So these execs better figure they aren’t just going to be saving rent and desk space expenses, and will need to pay for setting up offices in the home. Manual workers will have to turn up to put bolts in holes and don’t face those expenses. Saving personal travel expenses depends on where one lives, and I don’t see why people should donate some of their “savings” to the company by giving them a free desk and electronic connections. It’s all so top-down “efficiency” BS so far to save someone else money who already has more.

      So far as some random yankee telling Tavares he doesn’t know his costs, explain how he made Opel profitable in 18 months if you’re so smart. And funded new Opel models as well. Teslas sold in the EU get EU country specific rebates as well as the EU manufacturers do, or had you forgotten?

    • 0 avatar

      GM and FCA pay Tesla hundreds of millions a year to buy EV credits. Tesla is subsidized in more than one way. GM and FCA will never get these subsidies.

  • avatar

    “Even Tesla owes a substantial amount of its current profitability to selling off carbon credits to automakers building internal combustion models, and it’s the gold standard for how to run an electric vehicle firm.”

    Tesla does make a profit on each car they make without government subsidy. They still have a lot of expenses unrelated to the profitability of the cars like building 2 massive factories simultaneously, expanding a third, moving into the battery cell manufacturing business, growing their power distribution business, and getting their biotech manufacturing business started. At least two more vehicles on the way, the van and the little hatchback. It takes money to grow a business. Especially when they seem to be moving well beyond the auto business.

    • 0 avatar

      Tesla owes all of its profitability to the sale of credits.

      • 0 avatar

        @Scoutdude: False. They only received less than $500 million from those credit sales. Considering the costs of building yet another new factory, it becomes obvious that the margins received from the cars are being used for growth and that Tesla is doing a remarkable job of balancing their revenues (including the credits) and their outlay.

      • 0 avatar

        “Tesla owes all of its profitability to the sale of credits.”

        Those credits are helping pay for its expansion. Tesla’s reliance on those credits doesn’t mean the cars themselves aren’t profitable. The Austin complex alone is almost three times the size of the Rouge complex in area. They’re growing from producing a single roadster to building a semi, 2 different SUVs, 2 sedans, a pickup, a 12 passenger van, and a compact hatchback. That sort of expansion takes money.

      • 0 avatar

        Scoutdude is right, Tesla is only profitable because of selling credits, according to their second quarter earnings report. Those credits taper off as GM and FCA sell electric vehicles.

        • 0 avatar

          @Matt51: I disagree. Oh, I accept that those credits are used for that purpose but I don’t agree that those credits are the ONLY reason they’re showing profits.

  • avatar

    Sounds to me like Stellaris needs to consider Elon Musk’s offering, at least for the short term. Start with a known drivetrain and simply add your own chassis and body. Use the extra time gained to develop your own drivetrain and migrate it in, gradually weaning yourself off of that partnership.

    Either that, or simply keep the partnership in much the way FCA attempted to do with GM so that the sharing can benefit both brands.

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