Carlos Tavares, CEO of Jeep maker Stellantis NV, on Tuesday warned that a recession could be disastrous for the automotive industry as economic policymakers increase interest rates to curb inflation.
"If you cool down the economy too much, you can trigger a recession, and that's what people are afraid of," Tavares said from Germany during a virtual roundtable. "And I think they are right. I think they should be afraid of that."
He urged caution in the decision-making of central banks. It's especially a critical time for the auto industry as it makes a historic transition toward electric vehicles. Tavares, an outspoken critic over how regulators are pushing the zero-emission revolution, warned increased costs of servicing debt because of higher interest rates could lead to spending cuts from governments and result in less incentive support for buyers of EVs.
"If you damage the capability of the middle classes to buy electrified cars because you support them less," Tavares said, "because you don't have so much money, because you need to take care of the budget deficit, because you cannot continue to increase the debt, because the servicing of the debts is very expensive, because of the increasing interest rates, you are increasing the gap," which means less demand.
Those risks come just as automakers also are experiencing increases in raw material prices that further inflate the costs of heavier EVs, which are 40% to 50% more expensive than their conventional counterparts, Tavares said. Higher-priced vehicles from an inventory shortage resulting from the insufficient production of microchips are helping to cover those additional costs for now. Affordability, however, becomes an obstacle for lower-income buyers.
The CEO predicts by 2024 or 2025, the industry will experience a shortage of high-voltage batteries as it awaits more production to come online, typically a three-year process from required permits, construction and obtaining equipment from China.
"That's why between now and '25, what we are doing in fact is we are pumping batteries out of China or out of Korea basically," Tavares said, "which is not in the best interest of the western world."
The automaker on Tuesday announced its second North American battery plant in Kokomo, Indiana, that will start production in 2025. Once battery plants like that one begin production, Tavares suggested that could result in a shortage of the raw materials to produce them by 2027 or 2028.
"The speed at which we are trying to move all together for the right reason, which is fixing the global warming issue, is so high," he said, "that the supply chain and production capacities have no time to adjust."
As a result, Tavares called on policymakers to keep emissions requirements where they are or risk trapping companies that are unable to deliver because of the supply-chain constraints.
"The only thing that really helps to deliver is stability," he said. "Stop playing with the rules. Leave the rules as they are, and let people work properly with a lot of focus and a lot of rigor."
Regulations, he added, will determine when engine plants and others used to make components or gas- or diesel-powered propulsion systems begin the transition to making EV parts. That'll happen two to three years prior to the required threshold the automaker must meet, and Stellantis will offer the training needed to the workers willing to make the transition.
The automaker is investing $35.5 billion into electrification and software by 2025. It will have 25 all-electric models in the U.S. by 2030, when it expects more than half of its sales to be EVs. The company currently offers no battery-electric nameplates in the country. Tavares said production will be ramp up between 2023 and 2025, though he fell short of asserting a deadline by when Stellantis will surpass global EV leader Tesla Inc. in sales as other competitors have.
But even if economic conditions result in a smaller vehicle market, Tavares emphasized Stellantis is positioning itself to withstand such shocks. The company is working to keep its break-even point at 50% of its sales.
"If the demand goes south because the affordability factor is not there, then we need to be able to live with a lower customer base," he said. "With less sales, at least for a certain period of time, which then means to protect the company and ensure the sustainability of the company that we need to keep our break-even point, which is exactly what we are doing."
There are other ways beyond financial incentives to encourage EV adoption. That includes rules in Europe that restrict use of certain roadways to zero-emission vehicles. Tavares, however, said he hopes the practice doesn't spread elsewhere.
"You will not be able to go in certain areas of urban zones if you're not driving a pure EV," he said. "That's going to impact the freedom of mobility, and that's going to impact the value of the freedom of mobility that you are ready to pay if you have to buy a BEV to go to your office every day, because you are in an urban area."
