The Fiat Chrysler-PSA Merger: The Lesson from Tesla On Harnessing Software Model

The Fiat Chrysler-PSA Merger: The Lesson from Tesla On Harnessing Software Model

Fiat Chrysler and PSA Group are about to finalize their merger: “ Fiat Chrysler Automobiles NV and PSA Group are poised to get shareholders’ sign-off on a combination that’s endured two years of extraordinary drama, marked by on-again off-again talks, the transformation of their industry and a global pandemic.” Possibly, this deal will help them pool resources together for the future of automobiles which to a large extent includes electric and self-driving vehicles.

Fiat Chrysler and PSA executives reckon they’ll boost returns with scale more closely resembling Volkswagen AG and Toyota Motor Corp., and have greater resources to compete with electric-car upstarts and tech-industry interlopers. But plenty of challenges await once the deal is done. Stellantis will be an amalgam of model lines with enviable positions in certain segments and areas of the world, but neither company has much of a foothold in the luxury-car business or China’s vast auto market.

“Stellantis will be a sort of conglomerate of brands, some great and some not so good and most very regional,” said Jefferies analyst Philippe Houchois. “The merger will be a good opportunity for a reset.”

They need to learn from Tesla which has transformed its industry by becoming a software company which makes cars! And it has also used the double play strategy to unlock massive value in the system. Yes, Tesla makes billions of dollars just by selling emission credits.

But Tesla is even the finest software & services company in the automobile sector. The fact is this: Tesla does not need to be overly valued just on the number of cars it has sold, just as we are not counting how many iPhones Apple has sold recently. Apple has moved into the services era, well beyond a life tethered on hardware.

I see Tesla as the only current “automobile” company in the world that has a clear playbook to make, possibly, more money on software and services than actually on sales of metals packaged as cars. First, the company is piling tons of money from regulatory credits: “In their most recent shareholder update, Fiat Chrysler Auto disclosed that as of March 31, 2020, its agreements represent total commitments of €1.1 billion”. Yes, that was how much Tesla made from FCA for selling credits which could have expired!

Besides all, Tesla plays the perception game which means it would be hard for any car company to easily catch up as it changes the basis of competition on the fly. So, for Fiat and PSA, this deal must go beyond making cars, it needs to find ways to make fans out of customers since perception is now a big component in the game of automobiles.

The new template for the industry is evident: a software company which ships cars since for Tesla you need to be on subscriptions to get some updates and some software systems are not transferable on sales.

This business model where someone can buy a car and still be paying a subscription on the car for some features is something Fiat and PSA must think deep into.


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