Potential Peugeot and Fiat merger heralds stronger electric vehicle future

Reports have appeared in the last day promising a potential merger between French automotive manufacturer Peugeot and Italian-American automotive manufacturer Fiat Chrysler – a move which, if it proceeds, could open the way for the two companies to increase investment in electric vehicles.

The Wall Street Journal first reported the news on Tuesday citing “people familiar with the matter” that Fiat Chrysler Automobiles NV and Peugeot maker PSA Group of France are looking to combine their companies – a move which could create an estimated US$46 billion (AU$67 billion) trans-Atlantic automotive giant.

Further, according to Reuters, the supervisory board of Groupe PSA – the parent company of Peugeot – was meeting Wednesday to discuss the potential merger.

What is most interesting is the market reality that a newly merged automotive company would still be faced with, namely, an industry which is facing the prospect of a slowdown in global demand paired with a dramatic change in automotive technology.

If the two companies manage to overcome the numerous trans-Atlantic political, financial, and governance hurdles – not a small feat in itself – the resulting company would still be faced with a world looking to reduce reliance on personal automobiles and transitioning to electric vehicles.

Peugeot Chief Executive Carlos Tavares has already predicted “ten years of chaos” for global automakers as regulators around the world demand a switch to electric vehicles to reduce emissions related to climate change in an effort to limit global warming.

This is particularly of concern for Fiat Chrysler – which has existed under a cloud of speculation that it was searching for a merger partner for several years now – as the company disclosed earlier in October that it faces a US$79 million fine for falling short of US fuel efficiency standards.

Fiat Chrysler has also already agreed to pay US electric car giant Tesla for credits to help it comply with European emission standards through to 2022.

A merger between Fiat Chrysler and Peugeot, then, could give the two companies a fighting chance in a dramatically shifting automotive future.

By sharing engines and vehicle architectures and reducing capital spending, the two companies could free up cash to better invest in electric vehicles and other emissions reduction technologies which are quickly becoming business-as-normal in regions such as Europe, China, and other global markets.

Evercore analyst Arndt Ellinghorst in a note on Tuesday said a combination of Fiat Chrysler and Peugeot “should ignite more rational industry behavior around allocation of capital and this particular merger makes materially more sense than a potential FCA-Renault merger.”

There is still a lot of road to cover, however, before any merger is even acknowledged, let alone eventually approved. And, even if the many regulatory hurdles are overcome, the two companies will still need to prioritise electric vehicle development and production in order to successfully compete in a dramatically changing landscape.

The company will also need to be able to compete against other automotive manufacturers – both large and bespoke – which have already cemented their place in this shifting marketplace, and which are already delivering electric vehicles to a greedy customer base.