Stellantis Cuts Costs, Hires in Brazil, India Amid EV Shift

Key Takeaway

• Stellantis NV hires engineers in lower-cost countries like Brazil and India at €50,000 to cut costs amid competitive pressures.
• The strategy aims to combat declining EV demand and competition from Chinese manufacturers, despite causing a significant share drop.
• This global workforce shift has led to developmental challenges and political/labor tensions in traditional automotive hubs.

Global Workforce Strategy

Stellantis NV, the automotive conglomerate behind brands such as Jeep, Opel, and Chrysler, is actively recruiting a majority of its engineering workforce in lower-cost countries including Morocco, India, and Brazil. This strategic move aims to mitigate expenses amidst the competitive pressure from Chinese electric vehicle (EV) manufacturers and a global slowdown in EV demand. The cost of hiring an engineer in these lower-cost countries is approximately €50,000 ($53,000) annually, significantly less than the rates in traditional automotive hubs like Paris and Detroit, where costs can be up to five times higher.

Industry Cost Pressures

The automotive industry is undergoing a significant transformation, with manufacturers worldwide striving to produce more affordable vehicles. This shift is in response to decreasing EV demand and the need to remain competitive against emerging Chinese players. Stellantis' approach to cost management includes a focus on optimizing labor costs, as highlighted by Chief Financial Officer Natalie Knight. Knight emphasized the ongoing importance of cost discipline, particularly in labor, during the company's recent earnings presentation. This presentation saw Stellantis' shares slump by 11.5%, marking the most significant drop in two years, amid concerns over declining European demand and margin pressures.

Expanding Expertise and Challenges

In pursuit of cost efficiency, Stellantis is not only looking to save money but also to enhance its capabilities in critical areas such as software development, artificial intelligence, and battery-cell chemistry. The company's global strategy includes significant engineering layoffs at its US headquarters in Auburn Hills, Michigan, while simultaneously planning to increase its engineering workforce in Brazil by about 500. This global redistribution of engineering roles has, however, led to some developmental challenges, such as issues with the steering system of the 'Smart Car' platform, necessitating intervention by engineers from France and Italy.

Political and Labor Tensions

Stellantis' global workforce strategy and cost-cutting measures have stirred political and labor unrest, particularly in Italy and France. The company faces pressure from the Italian government and labor unions over job cuts and working conditions. Additionally, CEO Carlos Tavares' compensation package has drawn criticism from several proxy advisers, highlighting a perceived disconnect between executive remuneration and the broader workforce's challenges. This situation underscores the delicate balance Stellantis must maintain between operational efficiency, employee welfare, and political considerations.

Management Quotes

• Carlos Tavares, CEO of Stellantis:

  "Making affordable vehicles means the company must seek more savings with Chief Executive Officer Carlos Tavares in January issuing a stark warning on 'disregarding the reality of your cost situation.'"

• Natalie Knight, CFO of Stellantis:

  "There is always more potential when it comes to cost discipline. We’re going to continue to optimize our labor costs — this is something that has been important both on the white collar and to a lesser extent on the blue collar side."

• Emanuele Cappellano, South America COO of Stellantis:

  "The engineers, many of whom are based in Betim, focus on global projects."