How Stellantis CEO Carlos Tavares instilled startup speed in a 'dinosaur'

Stellantis CEO Carlos Tavares says after 41 years in the industry he is now considered the wise man in the room. That wisdom and experience convinced him that to make the combined pieces of PSA Group and Fiat Chrysler Automobiles a success he needed to empower and energize the entire workforce. He says the 1-year-old company's ability to embrace rapid change has allowed it to make sweeping changes at the speed of a startup. The initial results have been impressive. Stellantis’ 2021 operating margin was on par with premium automakers and it is forecast to remain in double digits. Tavares explained how in answers to questions from Automotive News Europe and other journalists during several roundtable discussions this month.

Stellantis' Dare Forward 2030 plan sets a number of tough targets that include doubling revenue to 300 billion euros in nine years, maintaining an adjusted operating margin above 10 percent over the period, with a peak of 12 percent in 2030. What makes you confident these targets could be achieved despite an increasingly challenging environment?

Because this is a bottom-up plan [which means it was developed at the lower levels of the organization and funneled up through consecutive layers until it reached top management.] I asked the team many times, "Are you sure you can do that?" They said, "yes." What came together is a very strong bottom-up plan because people want to change. People do not want to be caught in a dinosaur-like legacy company. Our people are rapidly embracing change. Some of our stakeholders, namely some governments, may be surprised by the speed at which we decide things. We have been dealing with many startups and tech companies and I can tell you that Stellantis’ decision-making speed is the same as theirs, despite many people seeing us as a sort of dinosaur.

You say that Stellantis cut its production breakeven point to below 50 percent of deliveries late last year. How did you do this and what was the previous breakeven point?

When Stellantis started operating in January 2021 its breakeven-point was about 4 million units a year. During the summer break, when the semiconductor supply situation was really bad, I realized there are so many uncertainties and so much chaos around us that we need to continuously think about protecting the company from that chaos. Last September, I brought the issue to the top leadership team, and we decided that we should try to lower the breakeven below 50 percent, so about 3 million units. By year-end we had achieved it. I think I visited 30 plants last year and I saw that our plant managers and their teams have tons of ideas. The key was to create a context in which they could express their ideas and we could execute their ideas in the shop floor. This way we addressed fixed cost, variable costs. The synergies we gained in the first year of the merged company helped significantly.

When Stellantis was formed you envisaged annual synergies worth 5 billion euros after five years, with 80 percent – or 4 billion euros -- achieved by year four. In 2021, in the company’s first year of operation, synergies were valued at 3.2 billion euros. How did you go so far so quickly?

We are on a good pace, but the reason to be happy is that those synergies are coming from the bottom up, from what our people are proposing because they understand the purpose of this merger. They are doing very thoughtful things at a very high speed. It is true that the 3.2 billion euros generated last year are the low-hanging fruit. So, it is reasonable to think that after the low-hanging fruit is gone, the pace of progress would slow down. Nevertheless, we plan to reach the 5 billion euro target by 2024, a year ahead of the original plan.

In the Dare Forward 2030 plan you said you want to create a separate business unit for your light commercial vehicles. How will it fit into a Stellantis matrix that is currently made up of individual brands and regions?

It will become a single, global standalone organization. I want all LCV operations to unleash their massive potential, creating a new business unit that will work independently on everything from marketing and sales to manufacturing. Putting together the LCV business with our North American pickups results in a business with sales of about 1.2 million units a year. We want to be No. 1 in volume by 2030, launching 26 new models, and to double revenue compared with 2021.

Stellantis expects to reduce distribution costs by 40 percent by switching to a hybrid retail model. Stellantis terminated all its franchise dealer contracts in Europe in May 2021 and aims to have the new model running next year for select brands and countries, but dealers are nervous. What is being done to calm their fears?

We are currently holding conversations with dealer bodies and what I see in the minutes of those meetings is that discussions are collaborative, constructive and peaceful. Of course, we always have people who say it's going to be difficult. My reply is, "Yes, the automotive industry is very, very challenging and this is why we are trying to build a distribution model together with our dealers that will work better in the future for both sides." However, we can never forget that the customer is at the center of this effort because Stellantis is a customer-centric company.

Italian politicians and worker unions sometimes float the idea of Italy buying a stake in Stellantis to protect plants and workers in the country and to balance France’s 6 percent stake in the company. Would that make sense?

I don't see the purpose and believe there are other intelligence ways of using taxpayer money. We can protect Italy and work with workers there because this company is going to create a lot of value. If Italian citizens want to invest (in Stellantis), we would be happy. By the way, there is great potential to tap in Italy, which is full of very talented people who are full of energy. They want to do more things than what was possible in the past because they didn't have enough funding. Because of the [financial] results we are achieving, we are providing more funding to relaunch Lancia, relaunch Alfa Romeo and to bring new vehicles to the Fiat brand.

Stellantis has pledged not to close plants but sales in Europe are on the decline. Is your manufacturing footprint in Europe still sustainable?

The size of the European market is the real issue, not only for Stellantis but for the entire industry. Sales of passenger cars and light commercial vehicles in Europe fell from 18 million pre-COVID in 2019 to about 15 million in 2020 and 2021. Since we have a market share of about 22 percent that means we lost over 600,000 units each year. We do not expect a big rebound this year, with growth of about 3 percent. With the plan we unveiled this month, we showed we have the product, talent, distribution network and investment strength to maintain our roughly 22 percent market share.

What is the ideal size of the European market?

Between 18 million and 20 million units. If we continue to remain at about 15 million, actions on capacity (reduction) will be required because I have to assure the sustainability of this company.

Fiat Chrysler successfully spun off Ferrari in 2015. Volkswagen Group plans something similar with Porsche. Would Stellantis consider spinning off Maserati?

You can never say never, but it is not an option for us now. The reason is that for the next 10 years we see a very clear path to grow Maserati’s profitably and having a 15 to 20 percent operating margin. We have worked intensely on the product planning. We have set the bar very, very high on quality. I have postponed the launch of the Grecale [compact SUV] to make sure it is absolutely where it should be in terms of fit and finish, electronics and infotainment. We are currently preparing the launch of the new Gran Turismo [coupe] in 2023. So, I feel very good about Maserati, and I feel the same about Alfa Romeo. Therefore, I don't see any IPO opportunities right now for any of our brands.

The German auto industry is pushing the EU to consider synthetic fuels as an alternative to helping reduce CO2 emissions. What your view is?

Synthetic fuels may represent a good solution for this transition as long as it is still possible to protect the planet and also offer an affordable alternative for the middle class.

There are fears that the shift to electrification will cost thousands of jobs at automakers and suppliers.  What do you think?

From a manufacturing standpoint, building an electric vehicle is not very different than a model with an internal combustion engine. It just a matter of training. The main difference is assembling that big box -- the battery pack -- which represents a huge part of the vehicle’s cost. As long as you make those battery packs and battery cells close to the assembly line, which means in the same region, then it's not a big deal. My fear is an attitude that I see mostly in Europe, where change is seen as a threat. We should not be afraid of change. Change doesn't have to be to be painful. Change can be fun, and we should have fun. I always tell my people, "Please go ahead and take risks." I'm here to cover the risks. I have never faced a problem that a group of four or five well-educated, well-intended top executives with open minds could not solve.