Why Carlos Tavares is betting big on India

The CEO of Stellantis makes it clear that the company is here to stay and will fight it out to create a niche of its own.

By Hormazd Sorabjee calendar 07 Jun 2022 Views icon8463 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Why Carlos Tavares is betting big on India

Carlos Tavares is clearly someone who thinks long term. The CEO of Stellantis is also a pragmatist who takes one thing at a time.

These two traits came through strongly during a recent virtual meeting with select Indian journalists in Chennai where Tavares dwelt upon the Jeep and Citroen brands, the imperatives of electrification and why Stellantis was here to stay in this intensely competitive market.

As he reiterated, the company had drawn up a nine-year plan with three legs of three years each. “India will more than double the net revenues by far because we are growing our activity (in India). Of course, we want everybody to be above the double digits and we are ready today as a region in Asia- Pacific,” he said.

Yet, it was quite clear that India as a market “is not yet ready because we are still growing our operations starting this year”. However, he was confident that within a couple of years, Stellantis would have double digits margin as much as the rest of the region. “The rest of the region in Asia-Pacific is already significantly above the double digits and is committed to supporting the corporate goal that is to be completed inside of 2030,” elaborated Tavares.

India as a region “is going to double its profits within this time” and in the second leg of the plan the progress will be “clearly visible to all of us”.  The confidence stems from the fact that a lot of preparation has gone into this exercise with arduous work carried out for many years on localisation and vertical integration.

Stellantis has two vehicle plants in India apart from a powertrain unit and R&D centres.

Powertrain benchmark
Stellantis has walked the talk thus far with the powertrain operations in Hosur proving to be a great success. “It is visible in both cost-competitiveness and quality. Hosur is becoming our powertrain benchmark in the world,” he added. The team had already figured out a few years ago that products would have an EV variation because “we understood where the world was going and there is no reason why Indians shouldn’t benefit from the best technology in cutting emissions”.

This is why Stellantis had decided from Day 1 that it would have an EV version for its India smart car programme where the overall platform was engineered here. There were challenges to reckon with, though, especially in the fact that the full lifecycle analysis had to be clean. This meant taking care not only about the “mobility device” but also the energy. “We need to charge less frequently with clean energy and that, across the world, appears to be possibly the biggest challenge,” admitted Tavares.

The second challenge is to ensure that EVs are affordable especially for the middle-class in India and this is something that needs a lot of work — “not only as a company but as an industry” to make EVs affordable. Sales figures from across the world show a significant gap between EVs and conventional technologies “reflecting the fact” that an EV is 40 to 50 percent more expensive in total production cost.

“If we transfer this entire amount to the final customer, they will not be able to afford EVs. We need two conditions for this to work: clean energy which is beyond our reach and, two, to make EVs affordable by absorbing the additional amount,” elaborated Tavares. Ideally, sourcing batteries from India would have been perfect that “doesn’t seem to be possible” as of now. Once this becomes a reality, Stellantis will optimise what the country has to offer because it makes tremendous business sense.

Batteries represent 40 percent of the total production cost of an EV, which means that a lot of the added value of a car is going to be the battery. “So, for an enormous country like India, it is strategically important that there are Indian suppliers for batteries. If not, all of those batteries will come from China, Europe or somewhere else,” he said.

As Stellantis plans to focus on the Citroen and Jeep brands to power its India innings, the Meridian is the latest addition to the FCA assembly line in Ranjangaon.

The first EV will come next year but the level of localisation “would be higher had we found a battery/cell supplier in India”. Since that is not the case, the batteries will come from somewhere else. “When we are considering a new project for India and the rest of the world, we try to think about the platform from Day One with several variations so that you can accommodate the battery pack in the platform in a smart way,” continued the Stellantis CEO.

Hence, one does not need to engineer the full platform because there is an EV version inside. That means “we do not extract from the total investments on the platform”, specifically the EV variation. “From what we have seen over the last few years, our overall R&D and capex efficiency advantage vis-à-vis our competitors is around 30 percent,” he added. Simply put, this means that Stellantis is 30 percent more efficient in “what we get for the buck”.

This, in turn, comes from a lot of careful thinking. Instead of doing an EV from scratch and putting it out, “we try to be smart and try to learn the new way and try to be frugal in the way we engineer our cars”. This is especially critical for a market like India which is very demanding and where people expect a lot of value at an affordable price. “That is why we love it because it is possibly one of the most demanding markets in the world and the adoption of EVs is going to be driven by affordability,” said Tavares.

Between now and 2025, the world will see the building of capacities in batteries, motors, energy management systems etc. The initial investments will be high and in the case of India, the Stellantis CEO does not see EVs accounting for over 10 percent of volumes in 2025.

Between 2026-2030, as volumes and efficiencies grow around the world, costs will go down and EVs will possibly become more affordable and adoption rates will be higher. In the process, their share in India could go up to 30 percent by the end of this decade. “All that depends a lot on how good or not the industry will be at reducing costs to ensure affordability,” he said.

Freedom of mobility
Tavares made clear that the company was here to stay in India and would not join the list of automakers — the most recent being Ford  — that bid adieu. “We have come a long way and believe in globalisation. We do not think that fragmentation is the good direction for humanity and many of the problems that humanity is facing right now, starting with global warming, are global problems,” he explained.

From his point of view, Stellantis would bring the best technology to “the highest possible number of citizens” in the world for them to enjoy the freedom of mobility that is safe, clean and affordable. “I would say the ambition has now grown because Stellantis is much bigger than being FCA on a standalone or PSA on a standalone basis,” said Tavares.

He was also confident that it was possible to be profitable in India if “you do things in the Indian way”. The reason why some Western carmakers failed was due to the fact that they did not recognise that if  “they want to be profitable, they have to do things the Indian way in India”.

This meant being fast, frugal and understanding what the customer really needs. The key is not to impose on the customer things that they will not be willing to pay for. “That is the reason why we engineer cars in India. Many brought in from abroad have features and equipment that may not be totally valued by Indian consumers and they are not ready to pay for them,” said Tavares.

It is, therefore, important to focus on “very deep localisation" of over 95 percent and this is borne out by the powertrain plant. “If you don't localise the platform, engine and gearbox then forget it. You will never achieve 95 percent of localisation rate,” he added. Beyond frugality, continued Tavares, India is a place of innovation and “we believe that we can and should dare to innovate Indian in the different ways to go to market”.

The Citroen brand will lead the way in EVs in India next year.

Jeep and Citroen will be the two brands that will power Stellantis in India. The former has been “extremely successful” around the world in terms of using electrified powertrains.  “Jeep is blessed with very strong technology that we label 4xe and will transition between now to cut to a few years from PHEV to pure EV,” he said. Citroen, on the other hand, will pave the way for the EV programme in India next year.

Asked if Hosur could perhaps be the last location globally to make internal combustion engines, Tavares said that this would be in a nation where “it will be possible to sell ICEs”. While elaborating on the subject, he said, “I think that speaking for the regions that do not want to sell ICEs, then they should give up manufacturing of ICEs also.”

For those countries which believed that efficient ICEs or electrified ICEs would significantly improve health conditions of their citizens and contribute to fixing global warming, “then I would say that manufacturing of ICE’s should be where those sales are possible”. Hence, for a plant to be the last to make ICEs in the world, “first you need to be in a region where ICE sales are possible and secondly you have to be the best in cost and quality”.

The feature was published in Autocar Professional's  June 01, 2022 issue.

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