Opinion: FCA’s current CEO Marchionne is wrong, electrification is the answer

Electrification will not solve the auto industry’s problems, said Fiat Chrysler CEO Sergio Marchionne in an interview posted by Bloomberg.

In keeping with Marchionne’s typical bombast, his comments were wide-ranging and a little disorganized – as they have been in the past.  We’ll attempt to pick through them below.

Right out of the gate, Marchionne’s comments started off on the wrong foot.  When asked about electrification and autonomous driving, he immediately states that electrification will not be the solution to the issues facing the auto industry. But then he went on to say that a mixture of fuel cell (electric) and Electric cars would probably be the long term goal.

Marchionne’s companies have already flirted with electrification – Ferrari’s most expensive and exclusive car, the LaFerrari, is a hybrid; Fiat has the 500e which sells quite well, especially on the used market as we reported last week; and Chrysler sporadically started delivering the Pacifica Plug-In Hybrid earlier this year which seems like an excellent package especially for the price, if you can find one.

But while all of these electrified efforts have turned out well, Marchionne and his companies are still clearly quite skeptical of electrification.  He has urged customers not to buy the 500e because Fiat loses money on every car sold (so why keep selling them, if that’s the case? because you have to in order to keep the profitable California market, which means the 500e is making you money after all…), Ferrari has repeatedly tried to get Formula 1 to move away from hybrid engines, and Chrysler markets their Pacifica as a “hybrid” rather than a “plug-in” hybrid because buyers outside of California supposedly don’t want to have to plug in.  In fact, at the OC Auto Show this past weekend, Fiat brought two 500s to the show floor – one standard, one Abarth – but neglected to bring the 500e even though OC Fiat, which sells more 500es than anywhere, is just miles away, in fact it’s even on the same street as the convention center where the show was happening.

To be fair, Marchionne did clarify that “we have to electrify” and that electrification will not solve the auto industry’s problems “by itself,” which suggests that he does see some value in electrifying the fleet.  But he also said that the main reason for electrification is to meet required emissions standards, making it sound like electrification is a chore, rather than something he actually wants to do.

Treating electrification like a chore is not going to benefit Fiat Chrysler.  The industry is rapidly moving in the direction of electric vehicles whether Marchionne likes it or not.  He can either embrace the trends that are happening or lag behind them.  In the interview, he does acknowledge that his company, and the industry as a whole, are often slow to move.  “We’re too slow, we come from a very old industry, I mean we’ve been around for 100 years, for us to make a decision it takes forever,” said Marchionne.

This is naturally true of any large actor in an established industry, but when coming from the CEO it sounds like an excuse rather than a reason.  Other similarly-stodgy companies have been able to make moves more quickly than Marchionne’s – GM and Nissan responded to Tesla by beating the Model S to market with the Volt and Leaf, and competing European auto brands have been stumbling over each other to announce ten- or eleven-figure investments into electrification. Meanwhile GM and Ford are busy one-upping each other on EV announcements.

In contrast, companies under the Fiat Chrysler banner have the worst average fuel economy of any automaker in the US.  So with the furthest to go, it stands to reason that Marchionne should be taking this more seriously than he is.  But alas, he is not.

Marchionne also echoed other aspects of his previous comments, and the comments of other industry executives, about possible other ways to achieve lower emissions without electrification.  He claimed that “we will find better ways to do this”, and that electrification is the near-term answer (to meet 2020 CO2 emissions goals) but will not be the answer 10 years from now.  In these comments he seemed to be referring to hydrogen as the possible long-term solution, though he spoke in very general terms about hydrogen, which seemed to show his lack of understanding of the engineering aspects as to why hydrogen is not gaining any ground.

Currently, hydrogen is produced almost entirely from fossil fuels – about 95% of it.  So a hydrogen-powered fuel-cell electric vehicle (FCEV) is currently a fossil fuel car.  In some locations, where electricity is generated from fossil fuels, this is also true of battery-electric vehicles (BEVs).  Both are cleaner than gas-powered cars, of course, and there are many more locations with higher renewable mixes for fueling BEVs than there are for fueling FCEVs – plus the ease of installing solar on your roof for a fully clean BEV-driving experience is much simpler than installing solar and producing your own compressed hydrogen to fill your FCEV.

Well-done graphic by @transenv showing the different efficiencies of various technologies to power vehicles with renewable energy pic.twitter.com/7O7Cgx98E4

— Eurelectric (@Eurelectric) August 2, 2017

But that leads us to another point, which is that BEVs are, and likely always will be, more efficient than FCEVs no matter the source of energy.  The current real-world efficiency of BEVs higher than the peak theoretical efficiency of FCEVs when all roundtrip energy losses are taken into account, so Marchionne’s claim that we will be able to come up with a “better way” to make cars more efficient using hydrogen sometime in the next ten years is simply impossible.  Marchionne has taken the bet that fuel cells will somehow overcome this impossibility and miraculously become more efficient than batteries, but he will lose that bet.

Tesla, in contrast, will win that bet.  Tesla CEO Elon Musk has spoken before about the difference between real-world efficiency of battery cells now and peak theoretical efficiency of fuel cells, and Tesla’s leadership knew this from the start when they launched the company.  But Marchionne, like most automotive executives, still thinks that fuel cells are the future.  While there are certainly reasons for fuel cells to exist and research into them is valuable and it’s likely they will find some niche in time, focusing on them as the near- or mid-term future of automotive industry is folly and can only be a bad decision for any company that chooses to focus on them to the exclusion of BEV technology.

Incidentally, Marchionne brought up Tesla in his comments as well. In some rare compliments, he stated that Tesla “has a better mousetrap” and that Tesla “moves at the speed of a rocket, it will take a while for the industry to match that timing, we need to match that timing.”  But he was also clear to say that he’s “not defending Elon” and that he doesn’t “think that economic model works.”

This last statement fits with previous comments Marchionne has made, suggesting that he doesn’t think it’s possible for Tesla, whose current automotive margins are higher than anyone else in the industry except for Porsche (and has a global scale battery gigafactory coming online), to make the Model 3 profitably.  But in those previous statements, he also stated that he could easily copy Tesla, if they were successful, within a year.  It seems strange that a company which is “too slow…from a very old industry” could go from not understanding how it’s possible to make a car to making that same car in under a year, when the “rocket-speed” Tesla took longer to make that car in the first place.

In short, it sounds like Marchionne doesn’t understand these new technologies, doesn’t know what he’s talking about, and as a result is going to doom his company, and its approximate quarter of a million employees worldwide, to a diminished role in the auto industry as the industry escapes him.  Those employees can only hope that Marchionne’s comments here are just showmanship, an attempt to put the brakes on the rest of the industry, while Fiat Chrysler continues to begrudgingly release good plug-in offerings like the 500e and Pacifica Hybrid despite also speaking out against them, anti-selling them to customers and lobbying against clean air standards (along with the rest of the industry).

If video doesn’t load, click this link