Automotive: Fiat Chrysler and PSA Group to merge – a giant but weak player in the EV landscape

Fiat EV

On 31 November, Fiat Chrysler Automobiles (FCA) and PSA Group announced their merger plan to create what would become the 4th largest automaker in the world. The deal would result in an automaker valued at US$50Bn and with combined sales of 8.7M vehicles based on last year’s figures. The proposed plan will bring together 13 brands, from Citroen to Ram.

The resulting automaker will, however, be greatly exposed to the new European emissions limits. According to Reuters, the deadlines to meet 2021 and 2025 emissions goals in Europe may add more pressure on FCA to adopt PSA’s more efficient engines, calling into question some of FCA’s engine plants in Europe.

While the competitive position of the companies is strong both in the USA and Europe, they have been unable to gain a strong position in China – the world’s largest auto market and growth factor for other companies like Volkswagen or GM.

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While the resulting scale may help the two automakers, they are not the strongest players in the electrification landscape. That is the reason why FCA first tried to merge with the Renault-Nissan-Mitsubishi Alliance back in June. In the period 2010-2018, PSA and FCA sold a combined 16,000 plug-in vehicles, around 10% of what the Renault-Nissan-Mitsubishi Alliance sold during the same period.

At the Detroit battery show 2019, engineers from FCA commented that the current focus of the company was to improve the efficiency of hybrid powertrains to comply with 2021 and 2025 European regulations. This signals towards the lack of expertise and cost capabilities for the manufacturing of fully electric vehicles. On the other hand, PSA unveiled at the Geneva motor show the results of its e-CMP electric manufacturing platform.

PSA does not seem convinced about e-mobility as the future direction of the company. Most recently, Helen Lees, PSA’s head of electric and connected vehicles, commented that the simplicity of electric powertrains threatened the auto industry as we know it: “They need less parts, less time in the workshop. Ultimately, it means less time in aftersales. That’s why we’ve chosen to diversify into areas such as shared mobility”.

The new auto group will undoubtedly pose a threat to other players in the short term. However, their small competitive position in countries like China, combined with their lack of expertise in electric powertrains and a looming economic crisis already affecting global car sales, will challenge the success of the new entity. Furthermore, the size of the new group means that it will need to develop its electro-mobility R&D internally, unless it acquires smaller start-ups or develops joint ventures with other Chinese groups. However, PSA announced this week the end of its joint venture with Changan, an automaker in China with more than 100,000 plug-in vehicles sold to date. PSA-FCA will likely retain its joint venture with Dongfeng, a state-owned Chinese car maker with similar cumulative plug-in sales.

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This article was written by Jose Lazuen. Please get in touch below if you wish to discuss further:

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