How PSA will take control of its electrified powertrains

PARIS — The EU’s current emissions targets have been in place for just over two months, but PSA Group is already preparing for the next round of CO2 cuts, in 2025, by vertically integrating production of the electric drivetrain and planning a shift to a dedicated EV architecture.

“Our clear manufacturing strategy is to be in control of our electrified powertrains,” CEO Carlos Tavares told investors during PSA’s annual results presentation in late February.

Bringing EV powertrain production in-house makes sense for a number of reasons, Tavares and other PSA executives say, but the main goal is to protect profit margins. The move would also ensure a reliable supply of battery cells — an issue that has reportedly hobbled some EV production in Europe — and minimize disruptions from global events such as the coronavirus epidemic.

Adding electric motors and other components such as reduction gears could also help minimize one of the drawbacks anticipated in the switch to electrification from internal combustion — job losses, which are predicted to be in the tens of thousands in Europe.

PSA’s current electric and electrified vehicles use motors from Continental and Valeo-Siemens as well as battery cells from the Chinese company CATL and LG Chem of South Korea. Smaller cars are built on PSA's CMP architecture, which was developed with Chinese joint venture partner Dongfeng Motor to accommodate gasoline, diesel or full-electric powertrains. Larger cars are on the EMP2 architecture, which can accommodate plug-in hybrid drivetrains. 

But that will change starting in 2022, when the first electric motors from a joint venture with the Japanese supplier Nidec will be built in PSA’s plant in Tremery, France.  PSA is finalizing another joint venture, with Punch Powertrain, to build electrified drivetrain transmissions in eastern France. And in 2023, the first battery cells built with partner Total-Saft will start rolling off lines in France and Germany, supplying not only PSA’s current brand lineup but also Fiat Chrysler Automobiles brands, if the merger of the two groups goes ahead as planned.

Tavares suggested that PSA could save about 10 percent through controlling production of motors, transmissions, reduction gears and ultimately battery cells.

“At this stage the per unit margins of electrified cars are not as good as the ones of internal combustion engines,” he said. “That means that we have to work very hard on the cost competitiveness of electrified vehicles.”

“The future is not about reducing emissions,” he said. “Zero-emissions cars are on sale; you can buy them. The real challenge for the future is zero emissions with affordability.”

That means, he said, “you need to control all the cost structure of the components for the electrified powertrain.”

Maxime Picat, PSA's head of European operations, said that producing components in-house would cut out suppliers’ profits from the supply chain, but he said that PSA could not “do it all” and would still be working with suppliers via joint ventures.

“What we bring is our knowledge of the automotive industry, our manufacturing skill, our purchasing power.” Picat told Automotive News Europe. “The sum of both can generate more value for shareholders and a better performing integrated chain.”

Electric vehicles are challenging a belief in the automotive industry that vertical integration is not cost effective.

“The supply chain for electric powertrains is currently evolving,” consulting company McKinsey said in a November 2019 report, with traditional Tier 1 suppliers offering integrated systems, moving downstream to become “0.5” suppliers, and many non-automotive companies pitching their wares and expertise.

The biggest players in electric vehicles are largely moving toward integration.

Tesla, the world’s best-selling EV maker, has proprietary electric motors and its battery cell gigafactories. Volkswagen Group is moving in that direction, announcing an investment of 1.1 billion euros to set up a battery cell factory in Germany. GM, an early entrant in the EV race with the Chevrolet Bolt-Opel/Vauxhall Ampera, which used a drivetrain and battery from LG Chem, is now working with the Korean supplier on a joint factory in the U.S. state of Ohio, and developing its own motors.

In contrast, Renault, an EV pioneer with the Zoe, builds its motors, but most of its battery cells come from LG Chem.

In 2025, when the EU further lowers emissions targets, “the mix of electrified vehicles will increase sharply,” Tavares said, “and the companies that will not be cost competitive, protecting the per unit margins of electrified vehicles will be in trouble.”

The 2025 fleet emissions target will be cut to 81 grams of CO2 per kilometer from 95g/km this year. The 2030 target is 59g/km.

A 10 percent cost reduction on an electric powertrain is “huge,” Tavares said, noting that the powertrain represents more than 50 percent of the manufacturing cost of an EV.

Once PSA has all these components within its production footprint, Tavares anticipates a shift to dedicated EV platforms rather than multi-energy ones, probably around 2024 or 2025.

“It depends on the mix of sales,” he said. “When is the moment where your mix of electrified vehicles is going to be about 50 percent? That's basically the question.”

“As long as we don't see clearly where the turning point is, making a dedicated platform may not be the wisest decision,” he continued. “And I think that's why right now we are in much better shape with a multi-energy platform.”

Tavares also said there is “no magic” in a platform designed from the start for EVs. “It's just a matter of packaging a bigger battery pack," he said, "with 100- or 120-kilowatt-hours of energy for a wider range."