European Carmakers Exploit Overcapacity to Gain Government Deals, Stellantis at Center of Conflict
A recent clash between Italian Prime Minister Giorgia Meloni and Stellantis CEO Carlos Tavares has highlighted a new reality: Europe’s once domestically focused car manufacturers have evolved into global players willing to leverage the EU’s surplus of automotive factories to secure favorable government agreements. Stellantis, the result of a merger between France’s Peugeot maker Peugeot PSA, Italy’s Fiat, and Detroit’s Chrysler, is responsible for the majority of car production in Italy. With declining Fiat output and Stellantis shifting production to other countries, Italy finds itself at a disadvantage.
According to data from GlobalData, Stellantis’ European factories operated at a utilization rate of 56% in 2022, compared to 64% in 2019, well below Volkswagen’s 71% rate. Automakers typically aim for at least 80% capacity utilization, but Stellantis is now using its excess production capacity as bargaining power to negotiate subsidies and policy support from Rome and other governments.
Stellantis recently received subsidies from state and federal officials in the United States to keep a Jeep plant in Illinois open. The plant will now produce a new midsize pickup truck that fills a gap in the company’s U.S. model lineup. With the majority of Stellantis’ profits coming from its North American truck and Jeep SUV operations, the company has prioritized European electric-vehicle production for France.
Italian officials are concerned about the impact on their own automotive industry, given that Stellantis is Italy’s sole major automaker, while France can also rely on Renault. Italy’s automotive production in 2022 was roughly 800,000 vehicles, compared to France’s 1.5 million units, according to AlixPartners data. Italian officials have demanded that Tavares rebuild Fiat production to 1 million vehicles per year. Meloni has criticized Stellantis’ decisions, accusing the merger of disguising a French takeover. She argued that the company prioritizes France’s interests over Italy’s.
Tavares, however, has defended the company’s position, stating that Stellantis is not afraid of reaching the 1 million mark but emphasizing that it depends on the size of the market. Tavares and Stellantis Chair John Elkann have been engaged in talks with the Italian government, urging Rome to provide support for increased output by offering incentives for consumers to buy electric vehicles, reducing energy costs, and developing an efficient EV charging network. In response, the Italian government recently launched a 950 million euro ($1 billion) auto purchase incentive for this year.
While Stellantis has been relocating production of cheaper vehicles to low-cost countries, assigning more expensive models to France or Italy, Rome remains dissatisfied with its limited influence over the company’s decisions. Stellantis is now faced with weakening car demand and intensifying competition, particularly from Chinese automakers that are offering electric vehicles at prices that European manufacturers are unable to match while remaining profitable.
Italy, as the EU’s third-largest economy, hosts Europe’s second-largest auto parts industry, but a significant portion of suppliers still focus on combustion-engine technology. As a result, Italian officials are concerned about the future of their automotive industry. According to Marco Santino, a partner at management consultants Oliver Wyman, important functions within Stellantis, such as engineering and research and development, have gradually shifted away from Italy since the merger. Santino highlights the increasing innovation and strength of the French auto parts industry as a key imbalance.
France, with a 6.1% stake in Stellantis through state-backed investment bank Bpifrance and a representative on the company’s board, plays a more influential role than Italy, which currently has no presence in the group. However, Italy’s Industry Minister Adolfo Urso has indicated that Rome is open to acquiring a stake.
While governance plays a role in the allocation of products, sales also matter. Italy lags behind France in the acceptance and adoption of electric vehicles, with fully electric cars accounting for only 4% of new car sales in Italy in 2022, compared to nearly 17% in France. To address this discrepancy, Venice University management professor Francesco Zirpoli suggests a practical approach, such as convincing Tavares to relocate some electric vehicle-related research and development functions back to Turin, where skills are still highly valued.
As Stellantis and its European counterparts navigate weakening car demand and increased competition, finding ways to adapt to the fast-evolving automotive industry will be crucial to their success. Italy must confront its challenges head-on and work towards leveraging its strengths to secure its position in the future of the automotive market.
Analyst comment
Positive news: Stellantis’ ability to leverage excess capacity to secure government deals is seen as a strategic move to gain support and subsidies. They have already received subsidies in the US and are in talks with the Italian government to increase output and support EV production.
Short analysis: Stellantis will continue to use their excess capacity to negotiate favorable agreements and subsidies from governments. They are prioritizing EV production for France but must address concerns from Italy, their sole major automaker. Adapting to market demands and competition will be crucial for success in the evolving automotive industry.
