On December 1, Stellantis announced it had accepted the resignation of CEO Carlos Tavares, with his duties temporarily taken over by an interim executive committee overseeing the group's operational direction and business until a new successor is appointed next year.

This 'sudden' announcement was unexpected, as Tavares had recently told Les Echos that he had 'the unanimous support of the board and its chairman' and planned to complete his term successfully in early 2026. A week before the announcement, he was reassuring French factory workers during a packed schedule that short-term production declines would not affect jobs.

Henri de Castries, Senior Independent Director of Stellantis, said, 'The success of Stellantis since its inception is due to the perfect synergy between shareholders, the board, and the CEO. However, differing views emerged in recent weeks, ultimately leading to this decision.' This suggests significant disagreements between Tavares and the board on strategic issues like reversing sales weakness, addressing share price declines, and balancing the interests of multiple shareholders.

However, the official announcement still included a routine thank-you, stating, 'We thank Carlos Tavares for his years of loyal service and his contributions to the creation of Stellantis and turning around PSA and Opel, which have positioned Stellantis on the path to becoming a global industry leader.' Yet, this emphasis on pre-group achievements and downplaying current contributions may reflect the aforementioned disagreements.

Since starting his career in 1981, Tavares has served as Vice President of Strategy and Development at Renault and headed Nissan's North and South American markets. In 2014, he became CEO of PSA, successfully turning around the group's fortunes through aggressive and controversial means, later leading the merger of PSA and FCA. The new Stellantis became the world's fourth-largest automaker by sales, third by revenue, with 14 brands.

Under the new group structure, Tavares achieved several financial milestones: 6.17 million global sales (excluding joint ventures) in 2023, net revenue of €189.5 billion, net profit of €18.6 billion, industrial free cash flow of €12.9 billion, adjusted operating profit of €24.3 billion, and an operating margin of 12.8%. In the 2024 Fortune Global 500 list, Stellantis ranked 28th. These achievements made Tavares one of the highest-paid CEOs in the global auto industry, with an annual salary of €36.5 million.

However, the highlights could not mask the complexities and challenges of managing a giant corporation. Tavares' departure, a key figure in the French-Italian-American automotive 'super alliance,' seems to symbolize the end of an era.

How did the cost-cutting master falter?

Tavares' resignation comes as Stellantis faces complex challenges. This year, the group's financial performance fell short of expectations, with third-quarter net income down 27% year-on-year to €33 billion and global deliveries down 20%, with a 17% drop in Europe and a staggering 36% in North America. Amid falling sales, Tavares also faced criticism from unions and dealers.

The crisis in the U.S. market served as the 'spark' for this turmoil. In June, Tavares publicly acknowledged the failure of the group's high-price marketing strategy, while competitors gained market share through price cuts, causing Stellantis' U.S. brands (Chrysler, Jeep, Ram, and Dodge) to lose market share drastically. Kevin Farrish, chairman of the National Automobile Dealers Association, said Tavares 'overemphasized short-term profits and executive compensation,' damaging consumer trust and weakening market competitiveness. Meanwhile, UAW President Shawn Fain welcomed Tavares' departure, seeing it as 'a significant step in the right direction for the group.'

Stellantis' performance in Europe was also concerning. According to ACEA data, Fiat's market penetration rate fell to 1.8%, and Citroën's to 2.2%. Some dealers believe Tavares' extreme pursuit of profit margins led to the withdrawal of low-priced models from the market. For example, Lancia's Ypsilon model's price surged from €17,000 to €25,000, significantly reducing its appeal to its original consumer base.

These difficulties stem from Tavares' aggressive cost-cutting strategy. The Italian newspaper La Repubblica noted that while Tavares' management helped PSA and Stellantis achieve record performance over the past decade, its limitations emerged: on the one hand, he implemented extreme cost control measures within Stellantis, including layoffs, plant closures, stringent procurement negotiations, and high demands on teams; on the other hand, he insisted on brand pricing power, rarely compromising even under market pressure. These measures yielded short-term results but could not support long-term group development.

As we mentioned in 'Stellantis: The Difficult Savior of the Italian Auto Industry,' Tavares' 'three axes of cost reduction' – layoffs, streamlining product platforms, and divesting 'burdensome' entities – had worked well in his career and paved the way for Stellantis' initial strong performance.

For example, layoffs were Tavares' usual 'opening move' for cost reduction. Since promoting the formation of Stellantis in 2019, the group has cut over 50,000 jobs through resource integration, with Fiat alone systematically reducing about 12,000 positions, quickly improving the group's financial statements in the short term.

While layoffs were impactful, the following two strategies had a more profound impact on the group's brands. Substantial streamlining of model products effectively reduced R&D, design, and marketing costs but suppressed market share for multiple brands. For instance, Italian brands like Fiat, Alfa Romeo, Lancia, and Maserati significantly shrank in market size. Although the 'small but exquisite' strategy is theoretically sound, as Tavares gradually shifted the group's production capacity, supply chain, and workforce from Italy to low-cost regions, the future of these brands became more uncertain. While Tavares did not explicitly 'name and shame' any of the 14 brands, his admission that the group 'cannot continue to tolerate unprofitable brands' cast a shadow over some brands' prospects.

In summary, Tavares' aggressive cost-cutting strategy delivered short-term profitability for Stellantis but failed to address fundamental issues in the group's long-term development: over-focusing on financial performance, compressing product lines and R&D investment across brands, and trying to maintain profitability for each brand in different niches in the short term. However, this strategy came at the cost of fragmenting brands and product lineups. As we can see now, whether it's the severe turbulence in the North American market or the deep shrinkage in the European market, these challenges may ultimately become the critical factors that undermined Tavares' tenure as CEO.

Change at the Peak of the Super Alliance

Stellantis' sudden personnel change triggered a strong reaction in financial markets. On December 2, the group's share price fell over 7% on the Paris Stock Exchange, performing worst among the CAC 40 index. While investors may view this as a short-term negative signal, it sparked deeper concerns among the group's grassroots, especially French trade unions.

Philippe Diogo, representative of the French trade union Force Ouvrière, said that establishing an interim executive committee without strong leadership could plunge the group into a greater crisis. According toOuest-France, French trade unions are deeply concerned about this change, believing it will directly impact Stellantis' industrial strategy and production plans at French factories. Notably, Tavares had promised French factory workers that short-term production fluctuations would not jeopardize jobs, but his sudden departure now leaves this promise and future developments uncertain.

Meanwhile, Stellantis' complex ownership structure adds more uncertainty to this personnel change. The interim executive committee will be led by John Elkann, former FCA Chairman and head of the Agnelli family, raising questions about the balance of power within the group.

Previously, among Stellantis' major shareholders, the Italian Agnelli family held 23% voting rights (15.1% shareholding) through Exor, while PSA, representing the Peugeot family, indirectly held 11.5% (7.5% shareholding) voting rights. The French and Italian governments held 6.5% and 1.2% shares through BPI and Banca, respectively. Of the group's 11-member board, five members were nominated by Exor, five represented French interests, and Tavares occupied one seat.

This power structure has long been controversial. Adolfo Urso, Italy's Minister of Economic Development, has repeatedly complained about the 'unbalanced and absolutely unequal' shareholding structure between French and Italian stakeholders. Now, with Tavares' resignation approved, the influence of PSA, representing French interests within the group, may be weakened. However, the contradiction between the importance of the U.S. market and shareholder interests poses an even greater challenge. While the U.S. is crucial for Stellantis in sales, profitability, and brand recognition, the group lacks significant American shareholders. This structural contradiction poses a dilemma for the next CEO in driving North American market growth and coordinating shareholder priorities.

Beyond the uncertainty caused by personnel changes, Stellantis' top-level strategy for the future, 'Dare Forward 2030,' also faces a turning point. The plan aims to transform Stellantis into a global leader in electrification and sustainable mobility, investing over €50 billion by 2030 to electrify all passenger cars in the European market and make 50% of passenger cars and light trucks in the U.S. market fully electric. In the short term, the group's 2024 targets include achieving €200 billion in sales, a double-digit operating margin, an 8% R&D expenditure ratio, and a significant increase in electric vehicle sales. However, the feasibility of these targets is being questioned amid a deteriorating market environment.

In the European market, the huge investment in electrification transition is pressuring profit margins. Analyst Matthias Schmidt noted that 'the cost-cutting strategy has reached its limits.' Additionally, brands like Fiat, Citroën, and Maserati have underperformed due to delayed new model launches and frequent software issues, impacting factory production capacity. The issue of reduced production at Stellantis factories has sparked strong reactions in Italy. In mid-October this year, thousands of Italian workers protested the group's transfer of production to low-cost countries, believing it harmed the interests of Italian factories.

Amid this situation and intensifying tensions among the group's production regions, the Stellantis board may be more cautious in future strategy formulation, focusing on adapting to the actual needs of regional markets and prioritizing the balancing of multiple interests. Meanwhile, easing 'friction' with factory workers, dealers, and trade unions will be crucial to ensuring the group's operational stability and achieving long-term goals.

The successor will face monumental challenges

Saying goodbye to Tavares marks the end of an era for Stellantis and opens an unknown new chapter for its future. During his tenure, Tavares achieved financial highlights through strict cost control and brand integration, but this model is clearly unsustainable.

Stellantis' future successor will face unprecedented challenges: rapid technological changes, escalating regulatory pressures, and the complexities of managing internal shareholder interests and regional imbalances. In this complex situation, many key projects initiated under Tavares – such as the strategic cooperation with Zero Run Automobile and the launch of the STLA Frame platform – urgently require clear strategic positioning and strong execution to lay the foundation for the group's future competitiveness.

As an industrial giant with a diverse cultural blend and complex shareholder structure, Stellantis now stands at a crossroads of transformation. Its development trajectory will not only determine its own future but also profoundly impact the global automotive industry landscape. Amid the wave of new energy and intelligence, balancing internal integration with external competition and maintaining a leading position in global markets, especially North America and Europe, will be a significant 'exam' of wisdom and foresight for its new leadership.

Image: from the internet

Article: Automobile Review

Typesetting: Automobile Review