FCA’s outspoken CEO, Sergio Marchionne, has been known to make unpopular but frank comments about electric cars and the future of the auto industry. The man in charge of Alfa, Fiat, Chrysler and Jeep, called for its customers not to buy his electric car, the Fiat 500e, because he estimates the company is losing about $10,000 per units.
In a recent interview with Car Magazine, he reiterated his comments and elaborated on how he doesn’t understand how anyone can make money selling electric cars other than to comply with government mandates. He also made some interesting and somewhat confusing comments on Tesla’s success.
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I don’t think it is a stretch to say that his comments were all over the place. In the same breath, he compared the hype around the Tesla Model 3 to the internet bubble, one of the biggest financial disappointment in tech, and then he compared the automaker’s success in popularizing the electric car to Apple’s success with the iPhone, one of the most financially successful tech product of all time.
Here’s his comment in full:
‘Although the relevance of combustion will decrease, it will still be an important driver of mobility. Electrification may be the next big thing, but I’m amazed by the impact of Tesla’s new Model 3. With 300,000 orders in hand, their stock is up – again. It reminds me of the internet bubble. But where is the business model that will work in the long term? People should realise that there is nothing another company cannot replicate…’
Except that Tesla was the first carmaker to go fully electric with upmarket products, and they made this concept stick. In fact they created an icon, just like Apple did with its iconic iPhone. Is this not an approach FCA could mimic? ‘Welcome to the world of icons!’ quips Marchionne. ‘I don’t make iPhones. I make cars. Why don’t I make the iPhone of cars? Because if it looks and smells like Tesla, I don’t know how to make that economic model work. There is nothing Tesla do that we cannot also do. We build cars, sell them and are still able to pay the bills. But I’m not even sure you can recover all of your costs – let alone generate a profit – through electrification. The answer is bound to be somewhere else, and the question is whether we are doing enough to try to explore that somewhere else.’
I have a problem with this particular comment from Marchionne. When he says that “people should realise that there is nothing another company cannot replicate”, maybe that’s true, but why aren’t they replicating it then.
Because that would play right in Tesla’s mission: to accelerate the advent of sustainable transport.
Tesla launched the Model S in 2012, yet no other automaker released a luxury all-electric sedan with specs coming even just close to Tesla’s flagship vehicle. Porsche’s upcoming Mission E looks like it could become the closest competing all-electric luxury sedan, but it is not expected to hit the market until 2019. A solid 7 years after the Model S.
I think Marchionne answered why they don’t copy Tesla’s business – because they don’t know how to make money selling electric cars:
“I don’t know how to make that economic model work. There is nothing Tesla do that we cannot also do.”
This statement only makes sense if you think Tesla is not making money selling electric cars and somehow I doubt Marchionne thinks that. Obviously, Tesla is not profitable at the moment because the company’s capital expenditure is through the roof thanks to large investments in its growth, mainly expanding its retail, service and charging networks, as well as building the Gigafactory and new production capacity for the Model 3.
But Tesla’s gross margin on the Model S has been well over 20% for several quarters in a row now and that’s apparently something Marchionne is not able to achieve with his own electric car, the Fiat 500e. Therefore, I think he should probably rethink his view on Tesla and the electric vehicle market at this point. If there’s truly nothing that Tesla can do that you can’t, then you should be able to achieve a positive gross margin on a compelling electric car.
Featured Image: Sergio Marchionne, CEO of Fiat SpA, speaks during an interview at the Italian auto maker’s joint venture plant with Guangzhou Automobile Corp (GAC) in Changsha, capital of central China’s Hunan province, Thursday June 28, 2012. Fiat-Chrysler APAC announced the start of production of the Fiat Viaggio at the GAC-Fiat’s joint venture facility in China. (AP Photo) CHINA OUT