Fiat-Chrysler recently sealed its merger with French auto giant PSA. The two companies, now newly minted as Stellantis (NYSE: STLA), will comprise the world's 4th largest automaker. Even though the firm already boasts 8.1 million in sales, the road ahead is fraught with difficulties.
Stellantis, like other legacy automakers, is locked in an arms race with firms like Tesla (NASDAQ: TSLA) as the industry grapples with an increasingly electrified and automated future.
So what are Stellantis' plans for that future?
For one thing, by its size alone, Stellantis already has an edge enough to compete with rivals like Toyota (NYSE: TM) and Volkswagen (OTC: VWAGY). The new firm's combined resources are predicted to result in 6 billion in synergies, according to Bloomberg. Stellantis' Head of North American Operations Mike Manley expects that 40% of those synergies are going to come from the convergence of technologies and R&D projects, according to Reuters. For example, PSA's existing powertrains should help Fiat-Chrysler's models meet E.U. emissions standards by the end of the year. Synergies aside, Stellantis faces some more immediate difficulties.
For one, Stellantis will have to address a glut in production capacity in addition to finding a means to penetrate the Chinese market. Both PSA and Fiat-Chrysler have previously struggled to gain a foothold in the world's largest auto market. To the extent that Stellantis' new CEO, Carlos Tavares, has pledged to "rebuild" the firm's China strategy, according to Bloomberg.
As far as overcapacity is concerned, Tavares signaled that the new firm is questioning whether navigating the bureaucratic obstacle course of EU regulations will benefit his company in the long run. While flagship brands like Jeep and Peugeot should survive, luxury brands like Maserati face a more uncertain future.
However, cutting jobs doesn't seem to be Stellantis' immediate priority. The firm appears more focused on "selective growth and political independence, more than restructuring or size," Jefferies analyst Philippe Houchois told Bloomberg.
Selective growth and political independence aside, Stellantis' main priority seems to be one thing: electrification. To this end, Stellantis is at a slight disadvantage, at least when it comes to market capitalization. For example, Upstart EV truck manufacturer, Rivian, is worth about $27.6 billion. At the same time, Stellantis, even with its established brands and near-century of expertise, is only worth $26.5 billion, according to CNBC. That discrepancy demonstrates just how capital there is on hand for what investors expect to be a future dominated by electric vehicles.
Stellantis is not wasting any time in preparing for that future. The company plans to release 10 new EV and hybrid vehicles in 2021 alone. Between now and 2025, the firm plans to spend 2.7 billion to produce 30 new electric and hybrid vehicles. Stellantis' strategy aims to prioritize affordability while using its size to manage development costs, according to Tavares, CNBC reports.
Whether these and other moves will make Stellantis, a Tesla competitor remains to be seen.