Stellantis CEO Carlos Tavares once again complained about the electrification costs, describing the issue as the "the gorilla in the room."

According to an Automotive News Europe report, Carlos Tavares says that electrification will increase the total production cost by 40-50%, which is beyond what the company can accept. He already pointed that out in December, and in January, and continues to criticize the direction towards electric cars (instead of hybrids).

Last week, he said that automakers would need to find ways to absorb the additional costs.

"We can expect electrification to represent an additional total production cost of around 40 to 50 percent against the conventional vehicle. There is no way we can transfer 40 to 50 percent of the additional total production cost to the customer."

Stellantis' plan is to increase productivity (by 10% per year, over the next five years, compared to 2-3% normally).

The company is changing its sales model. After canceling dealer contracts in Europe, the company is expected to implement by mid-2023 a new "retailer model," with more control on how the cars are sold by dealers. It potentially will result in taking some of the dealer's tasks and profits.

Another way will be to transfer the higher costs to suppliers. Carlos Tavares said that 85% of the value of a car is from outside components, so there should be no surprise that they will have to absorb higher costs.

The one thing that Stellantis doesn't want is to increase prices because that would prevent people from buying new cars.

"This is going to be mostly a cost-reduction race over the next five years to protect affordability in terms of protecting the size of the markets, so that we can keep the middle classes on board on new car sales,"

Stellantis' overall adjusted operating margin in 2021 was 11.8%, which is quite strong.

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