MILAN — Fiat Chrysler expects the costs of launching full-electric and plug-in hybrid cars to negatively affect its money-losing European business even more in the fourth quarter than in the third quarter.
That is because the industrial costs associated with the automaker’s electrification program will increase, FCA Chief Financial Officer Richard Palmer told analysts during the automaker’s third-quarter earnings call Oct. 28.
FCA’s third-quarter operating loss in its Europe, Middle East and Africa region was 125 million euros ($146 million), the automaker said in a statement. Third-quarter European revenue was 4.6 billion euros, down 65 million on the year before. Its vehicle shipments dropped by 5 percent.
The main hit to European profitability came from a 188 million-euro quarterly rise in industrial costs, Palmer said.
The increase was mainly due to “compliance costs,” he said, referring to the money FCA has spent to launch electrified cars and to join an emissions pool with Tesla to ensure it meets the EU’s tougher CO2 emissions rules, avoiding big fines.
Half of those additional costs were tied to vehicles, mainly higher production costs of mild hybrids and plug-in hybrids, though some of those costs were recovered through higher retail prices, Palmer said. The rest was the cost of buying CO2 credits from Tesla, he said.
Palmer said FCA expects industrial costs to be “more negative” in the fourth quarter because the automaker will ship more plug-in hybrids and more units of the New 500 EV.
The automaker starts European deliveries of the battery-powered New 500 in November. Deliveries of plug-in hybrid versions of the Jeep Renegade and Compass began in the third quarter. Mild hybrid versions of the Fiat 500 and Fiat Panda minicars were launched in February.
Palmer did not give analysts financial guidance for FCA’s European business for the full year.
FCA CEO Mike Manley hinted that the automaker’s European business may break even or be profitable in 2021 despite headwinds from increased electrification costs. Asked by an analyst if it is reasonable to assume that FCA will lose money in Europe in 2021, he said it’s “not reasonable to assume that.”
Manley said there were some positive aspects of the automaker’s third-quarter results in Europe. He cited a “strong sales performance” that resulted in FCA’s light commercial vehicle market share increasing 130 basis points and its passenger car market share increasing by 30 basis points.
FCA expects that the COVID-19 lockdown last spring will result in a 25 percent production loss in Europe for the full year.
FCA’s European plants are currently reaching efficiency levels very similar to their pre-lockdown levels, Manley said. Whether that continues depends on the current conditions remaining as they are, he said.
Asked when FCA will be able to reduce its electrification costs by sharing PSA Group’s powertrains and platforms after the two companies merge, Manley said the PSA contributions would begin to kick in sometime toward the end of 2021, and rapidly accelerate as you get into 2022 and 2023.