Summary

Following the presentation of Mr Marchionne of the new strategy for Chrysler last week, it may be surprising that Fiat-Chrysler will limit the investments in electric vehicles in the next years. I think that this decision is part of a well thought strategy which aims to create a strong automotive group, based on financial solidity, global presence, and ownership of innovative technologies.

Analysis

On 4th November, Fiat's CEO Sergio Marchionne presented the new strategic plan of Chrysler, based on the integration with Fiat, which includes exchange of key technologies and market development targets.
In the presentation, little attention was given to the development and commercialization of alternative technologies and rechargeable cars, despite Chrysler had already dedicated resources to the development of electric vehicles. This new direction may seem unusual and risky in long term perspective, and some criticisms have followed. In my opinion, it gives clear indications of a solid strategy based on priorities and risks/benefits analysis.

Fiat is the market leader in efficient internal combustion engines, owing technologies like Multi-Air, Diesel Multijet, and Dual Dry Clutch transmission, which can deliver a good combination of higher torque/power and lower emissions/fuel consumption, and will be used in Chrysler vehicles from 2010. It seems to me that the new Fiat-Chrysler strategy is based on important points:

  1. Group consolidation with review of the entire value chain, to increase efficiency in operations and administration
  2. Increase of production volumes of the key technologies
  3. Exchange and further development of key technologies
  4. Global market presence and growth of the brands value and consumers' perception.
and with the objectives of having Chrysler break-even on a net basis in 2011, and keeping a leading position in key technologies for internal combustion engines.

The electric vehicles will be introduced by almost all the major makers in the next years. They are one of the most interesting solutions to address the important issues of reducing oil consumption and CO2 emissions in road transport. However, the market of electric vehicles is still very uncertain, both for the necessary technological developments and for the unclear acceptance from the consumers. To develop electric vehicles requires the use of significant resources with the perspective of gaining a share of a small market, at least in the short term. Besides, being a new market, new standards, also safety-related will be defined, and this will require more investments in research and development.

The strategy of Fiat-Chrysler, a new presence in the automotive market, seems to me well defined. It focuses on creating a solid group that owns important technologies, which will continue to be used well beyond 2020. There will be risks associated to late research and development of alternative vehicles; however, these risks can be managed with the view of future acquisitions or joint ventures, which will always be possible supposed that the company can offer financial solidity and innovative technologies. 

Analyses are solely the work of the authors and have not been edited or endorsed by GLG.