Fiat Chrysler's Renault Merger Ambition Is Powered by Electric Cars

Fiat Chrysler has never been terribly big on electrification, but that has to change—and so it will, if the company gets Renault to agree to a merger.

The $35 billion deal, proposed Monday, would be a merger of equals, with Fiat Chrysler Automobiles (FCA) and Groupe Renault’s shareholders each getting half of the combined entity. The operation would be the third-biggest automaker in the world, behind Toyota and Volkswagen, or the biggest if you take into account Renault’s alliance with Nissan and Mitsubishi. It would also, in FCA’s words, have “a strong position in transforming technologies, including electrification and autonomous driving.”

Renault already has this strong position, largely thanks to the vision of former boss Carlos Ghosn, who has recently fallen from grace over allegations of financial impropriety.

The Ghosn-led Renault-Nissan-Mitsubishi alliance started working on electrification over a decade ago, and in 2017 it was able to say the venture had become profitable. Renault is the European market leader in electric-vehicle sales, and in a few years’ time it also intends to be selling 15 models with autonomous driving capabilities.

The cost of holding back

Contrast that with Fiat, whose erstwhile CEO Sergio Marchionne was as recently as early 2018 insisting that electric vehicles aren’t worth the investment. That philosophy is reflected in FCA’s most profitable current lineup—the Jeeps and Ram and Dodge trucks that it sells in the U.S.

“These are all vehicles with ‘old technology,’ so not very innovative,” said Ferdinand Dudenhöffer, an engineering professor at the University of Duisberg-Essen, Germany, and a prominent auto industry commentator. “FCA therefore has a significant risk in its product portfolio.”

Marchionne died in July last year and his successor, Mike Manley, appears to be somewhat more electric-friendly.

FCA’s most profitable current lineup—the Jeeps and Ram and Dodge trucks that it sells in the U.S.—reflect its focus away from electrification in recent years. (Photo by Bill Pugliano/Getty Images)

Bill Pugliano—Getty Images

Fiat has recently been finding that, in the current regulatory environment, keeping it old-school is an expensive business. The European Union has since 2015 been phasing in tough new carbon emissions targets for automakers. There are stiff penalties for exceeding those limits, but manufacturers can pool their efforts, and earlier this month Fiat revealed that it had bought emissions credits from Elon Musk’s electric carmaker Tesla for around $2 billion.

Manley said FCA wouldn’t need to buy anyone’s credits from 2022, because its own cars would be clean enough. But, having under-invested in electrification for years, how can it catch up technologically? Fiat unveiled a concept electric car in March—the modular Centoventi platform—and it plans to show off an electrified version of its iconic Fiat 500 next year, but the process can be accelerated by joining forces with a more advanced player.

One possibility has been the shiny new electric-car platform of Groupe PSA, the company that owns the Peugeot and Citroen brands. PSA unveiled its e-CMP platform at the start of this year, and earlier this month the company was reported to be talking to FCA about collaboration on a “super platform.”

John Elkann Agnelli Foundation President Gives A Lecture At Bocconi University — FCA chair John Elkann is reportedly interested in pulling back from the car business, a move a Renault merger would allow for. (Photo by Pier Marco Tacca/Getty Images)

This tie-up would at least allow for the sharing of investment, but the proposed Renault deal would come with an added benefit—it would allow FCA’s controlling shareholder, the Elkann/Agnelli family, to gradually pull back from the business.

FCA chair John Elkann is, according to the Wall Street Journal‘s sources, keen to reduce the family’s exposure to the car business and diversify its investments. It has a 29% stake in FCA now, but would only hold a 14.5% stake in a combined FCA-Renault, making it politically easier to then reduce that stake and reinvest the cash elsewhere.

‘Radical’ changes

Renault also holds a 43.4% stake in Japan’s Nissan, another leader in the electric-car space, and a company that has a significant presence in China—which FCA does not. Renault’s own geographical strength is in Europe, and FCA’s in North America, via its Chrysler brand.

“The automotive world is changing radically,” said Dudenhöffer. “High spending on electromobility, weaker markets, an unpredictable U.S. president, preparing for the world of semi-autonomous and autonomous driving. Renault and FCA have the chance to position themselves better by coming together.”

It is far too early to speculate about the chances for the FCA-Renault merger. Renault’s initial reaction has been cautiously positive, but the French government, which has a 15% stake in Renault, wants to see the company’s French jobs and plants preserved in exchange for its approval. The French government also wants Nissan to be on board with the merger—the Japanese firm also has a 15% stake in Renault, but without voting rights—and is demanding that the combined entity become a leader in electric-car battery development, which is a scene that’s currently dominated by China.

But even if this merger doesn’t go ahead, FCA will need to enthusiastically join in the wider auto industry electrification trend, one way or another. As Manley put it earlier this year: “The reality is those platforms and that technology we used does need to move on. They can’t exist as you get into the middle-2020s.”