Analysis-CEO Stellantis follows Chinese path to avoid electric vehicle tariff ‘trap’ By Reuters

By Nick Carey, Nora Eckert and Joseph White

LONDON/DETROIT (Reuters) – Stellantis (NYSE: ) wants to adopt the low-cost mentality of Chinese electric vehicle makers, despite what European and U.S. tariff managing director Carlos Tavares says is anti-competitive, but the de- the world’s fourth largest carmaker must overcome trade barriers on both sides of the Atlantic if it is to succeed.

Tavares calls the tariffs a “trap,” arguing they will hurt legacy automakers by shielding them from the reality that Chinese rivals make about a third less electric vehicles.

The best way to compete is instead to “try to be Chinese ourselves,” Tavares told a Reuters Events conference in Munich in May.

That belief led Stellantis to acquire a 21 percent stake in Chinese electric vehicle maker Leapmotor (HK: ) last October, creating a joint venture that gives Stellantis access to Leapmotor’s technology and exclusive rights to manufacture its vehicles electrical outside China.

The challenges Stellantis faces in the EU and US are no different from those faced by all automakers trying to compete with the Chinese globally. However, Stellantis and a handful of others have gone a step further by partnering with Chinese automakers to stay competitive.

Stellantis produces Leapmotor electric vehicles at its factory in Tychy, Poland, alongside models from the better-known brands Fiat, Jeep and Alfa Romeo.

Tavares says Stellantis could produce Leapmotor electric vehicles in North America.

But applying the same strategy in Europe and the US is difficult because the regions have radically different approaches to Chinese electric vehicles and the underlying technology.

Chinese electric vehicles are already on sale in Europe; and factories are built to make more – with subsidies from individual countries competing for the factories.

European automakers adopt Chinese technology. Volkswagen (ETR: ) bought a stake in China’s Xpeng (NYSE: ) to jointly develop cheaper electric vehicles for the Chinese market.

Many auto experts see this as a blueprint for future partnerships.

“We believe many of our competitors will look to Chinese companies … to use their platform globally,” Ford (NYSE: ) Chief Executive Jim Farley said, adding that the U.S. automaker will instead develop its own core EV technology.

Such partnerships are much more challenging in the United States. The Biden administration imposed a 100 percent tariff on electric vehicles made in China, supported U.S. manufacturing through the $430 billion Inflation Relief Act, and targeted Chinese auto components.

The US government is now proposing to ban Chinese software and hardware from vehicles on US roads, which could be the most powerful weapon yet to block Chinese electric vehicles.

In theory, Stellantis could produce Leapmotor EVs at US factories, but with non-Chinese parts and US wages any savings could be minimal.

The real problem for Stellantis would be politics.

For example, Republican US Senator Marco Rubio and others have fiercely criticized a planned Ford battery factory in Michigan using technology licensed from the Chinese company CATL.

Stellantis’ contrasting options in the US and Europe highlight the differences in business strategies on both sides of the Atlantic.

The protectionist moves have divided automakers and executives, with some, like Tavares, rejecting the need for tariffs, especially German automakers that rely on China for profits.

BMW (ETR: ) CEO Oliver Zipse argues that because China dominates raw materials and components for electric vehicles, a trade war would hurt Europe.

“There is no Green Deal in Europe without resources from China,” Zipse said in May.

But some American automakers are in favor of the tariffs.

Ford’s Farley says the tariffs level the playing field, giving U.S. automakers a short window to match Chinese rivals’ ability to produce cheaper electric vehicles.

Industry observers say regardless of the tariffs, China’s EV industry will become a global powerhouse.

“GIVE THEM TIME”

US executives said two European Commission reports released this year – detailing Chinese government assistance, including subsidies for the direct purchase of electric vehicles, cheap corporate loans, cheap electricity and cheap or even free land – proved the need for protection.

Chinese companies dominate raw materials from rare earths to graphite, undercutting Western rivals on price.

In June, the US government reimposed a 25% tariff on artificial and natural graphite from China.

“As long as the market remains unbalanced … the tariffs should remain in place,” said Chris Burns, CEO of battery materials company Novonix, which received $203 million in U.S. subsidies and tax credits to grow production of synthetic graphite anodes in a plant in Tennessee. plant.

Detroit automakers also need better electric vehicle models to compete, said Tim Piechowski, portfolio manager at ACR Alpine Capital Research, a General Motors (NYSE: ) investor.

“These (tariffs) give them time,” Piechowski said.

“CARROT AND BIT”

The EU has proposed tariffs of up to 35.3%, but cannot exclude Chinese carmakers because the 27-nation bloc has a common set of rules that members and foreigners can play by.

“The aim is to remain open to competition from China, but on a level playing field,” a European Commission spokesman said.

Andy Palmer, former COO of Nissan ( OTC: ) and currently chairman of Slovakian battery maker InoBat, part-owned by China’s Gotion High-tech, said the EU must rely on a “carrot and stick combination to it brings the Chinese in, so at least they produce locally.”

Tavares, of Stellantis, says the tariffs hurt exports because protected automakers are under no pressure to lower prices.

“When you get used to protection, it’s very hard to get rid of it,” Tavares told Reuters in May.

Stellantis is instead relying on cheaper models such as its upcoming Citroen e-C3, which will start at 20,000 euros ($21,342), and Leapmotor electric vehicles to compete.

A number of automakers have backed off on electrification goals, but Stellantis said its goals of 100 percent electric vehicle sales in Europe and 50 percent in the U.S. by 2030 remain in place.

Moshiel Biton, CEO of Israeli battery materials company Addionics, which is planning a US$400 million factory for cathode materials, said legacy automakers need to develop better electric vehicles to compete, rather than embrace simply Chinese technology.

“If they’re just trying to copy and paste, they can’t compete with the Chinese on cost,” Biton said. “Innovation is mandatory or face a dead end.”