Marchionne still doesn’t see a business case for the Tesla Model 3, will become a dinosaur

Tesla_CEO-Elon_Musk-FCA_CEO-Sergio_MarchionneFiat-Chrysler Automobiles CEO Sergio Marchionne is famous for speaking his mind and making controversial statements about the automotive industry. He did so again earlier this week when he stated that he didn’t understand how the upcoming Tesla Model 3 could be sold for € 35.000 euros ($39,600) at a profit. He also claimed that he could build a rival to Tesla’s mass market sedan but doesn’t want to because he doesn’t see the business case: “If he (referring to Tesla CEO Elon Musk) can show me that it can be done, I will do it as well, copy him, add Italian style to it and put it on the market within 12 months”. Guess what? Sergio is right: it would be impossible for FCA to make money from EVs under his command, but that’s because he’s stuck in the traditional way of doing business as a car executive and an accountant.

Marchionne is betting big on gas-guzzling trucks and SUVs which are more profitable at the moment and probably will remain so in the near future. That’s a sound business decision from a purely financial point of view. But he lacks the vision to prepare FCA for the future beyond that, and he’s making the same mistakes as those American auto executives from the 1970s who didn’t believe they could make money from economy cars, until Honda and Toyota quickly rose to dominate the compact and midsized car segments and have continued to do so while making money off them. In the meantime, FCA is abandoning those segments because they’ve been trying to catch up with the Japanese, but simply haven’t been able to build competitive and profitable compact and midsized cars for decades.

Tesla_Model_3The 400.000 reservations (and counting) for the Model 3 prove there is a demand for electric cars that can go over 300 kilometers / 200 miles per charge, fill up quickly and continue their journey, while doing it in style, with performance and safety, at a comparable price to a gasoline powered premium midsized sedan. Is Marchionne right that it’s unlikely for Tesla to make money on the Model 3? Probably so, but as I’ve pointed out in a previous article about Tesla’s long term strategy, that’s not Musk’s goal. Marchionne simply doesn’t think that way, his background is finance and accountancy, not tech entrepreneurship.

Marchionne’s views on the automotive industry reflect that background, as he’s a great strategist and deal maker who has rescued both Fiat and Chrysler from bankruptcy because of it. But Musk is a true visionary who looks beyond making money in the short term and is making the future the present.

If Karl Benz had waited until he could see the business case for making automobiles, we might still be riding horses today, 130 years later.

  1. I wonder which, if any of the smaller electric or pure hybrid models on sales today actually generate a profit in their own right? They may be good for a company’s image, and for lowering their total emissions outputs. But I doubt that BMW profits given the expense of the ‘i’ series carbon fibre structures and unique drive trains.

    1. Good point, I think that’s exactly what Marchionne is referring to. But he underestimates the benefits on a brand’s image. Toyota also lost money on the first generation Prius, but that was more than made up by how it made Toyota into the greenest perceived auto brand. And because they were so successful with the subsequent generations, they still practically own the hybrid market worldwide and are making a ton of profit from them. That’s what these brands are also aiming for and also what Hyundai is aiming for with the ix35 hydrogen fuel cell EV. No way they’re making money on that car now, but at least they can claim they were the first, and it may pay off in the future. Meanwhile, FCA doesn’t have a single hybrid car and only one EV, which they’re selling at a loss because they’re required to sell it in California, not because they believe in the technology.

  2. Marchionne is an old school dinosaurus!The future is in companies like Tesla.New electric cars has good range and the sales is more that the mercedes s klass.So…!

  3. Marchionne may be right about not understanding how Tesla can make money on the Model 3 at that price point, but overall, he is a buffoon. How he can say that he can get a brand new car to the market in 12 months in a room full of people and none of them burst out laughing is just beyond me. How ’bout your other cars Sergio? Where are all the Giulias? I’ll tell you where, delayed again, this time to mid June. Jerk.

    And LOL at ” Tesla sells more than the S-Klass “. In the US, sure. Outside the US? Lol NO. The future may be electric, but i have serious doubts that Tesla will be at the forefront of the electric car game for long.

  4. Marchionne has an history of success in many industries. He may be wrong in some statement but is a smart guy; I guess he’s overtalking because he wants to remain on the stage anyhow.
    Furthermore in many cases not to be at the forefront may give you some advantage in terms of reduced capex or better products.
    My view is that he does not need to invest too much in technology because a good market position in specific segments good be enough to be sold at a reasonable price. An acquirer with good technology may just buy market presence and distribution networks. I.E. VW need a stronger presence in both Americas and has no Pick ups or Jeep.

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