Fiat-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.
The 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.
