Why Carlos Tavares, Stellantis’ chief cost cutter, was fired

Stellantis Chairman John Elkann, a member of the Agnelli industrial dynasty, spent Sunday calling senior officials in Rome and Paris to inform them of a decision with far-reaching consequences: the carmaker’s chief executive, Carlos Tavares, would resign.

The Stellantis board’s unanimous move to part ways with the outspoken Tavares came after sharp differences over electrification strategy and disputes over its short-term focus on restoring its economy hit by a slump in financial performance, according to people familiar with the deliberations a tarnished reputation.

Two of them said a particular point of friction recently has been Tavares’ push for an aggressive electric vehicle strategy to meet strict EU emissions rules, while the board favors a more flexible approach to maintaining factory operations and profit margins. Tavares’ resignation was accepted at a board meeting on Sunday.

His abrupt exit leaves the world’s fourth-largest automaker struggling to find a replacement as rivals such as Volkswagen and Ford grapple with tougher emissions regulations, factory closures and job losses to meet slow demand for electric vehicles and competition from Chinese rivals to become.

“The Stellantis crisis is an example of Europe not having a vision for its automotive sector,” said Enzo Peruffo, professor of business strategy at Luiss University in Rome. “After setting ambitious climate goals, there is a lack of industrial strategy implementation.”

Tavares unsettled Italian politicians with his confrontational approach and threats to close plants if subsidies for electric vehicles were not increased. In the U.S., its most profitable market, he raised prices on all mass-market brands, burdening retailers with inventory and creating tensions in the supply chain.

The 66-year-old has led the carmaker since 2021, when French Peugeot owner PSA and Italian Fiat Chrysler Automobiles merged. By ruthlessly cutting costs, the self-proclaimed “performance psychopath” initially boosted profit margins and built a solid balance sheet that allowed Stellantis to outperform its key European rivals with record profits last year.

But despite its early successes and push for electric vehicles, sales slumped in Europe and the US, forcing the group to issue a stark profit warning in September. Shares are down 47 percent this year, with shares down nearly 10 percent on Monday.

After halving its profit margin prospects in September, Stellantis said it had begun searching for a successor to Tavares and said he would step down at the end of his term in early 2026. A month later, a management shakeup at its major brands appeared to quell rumors that Tavares would step down before his term expired.

But people with knowledge of the discussions said tensions between Tavares and the board had risen rapidly in recent weeks as he engaged in a tug-of-war with public institutions, suppliers and retailers, particularly in the United States, over finances and finances to improve the group and restore his own reputation.

Tavares, people close to the discussions say, was shocked by the damage done to his name by the sudden deterioration in company performance.

Until then, the Portuguese had an excellent track record, saving PSA from near-bankruptcy and carrying out the mega-merger that brought 14 brands together under the Stellantis umbrella.

“What he has done is extraordinary,” one of the people said, adding that problems arose when Tavares tried to move as quickly as possible to improve perceptions of his own performance.

The person added that Tavares had tried to exceed its revised 2024 financial target by improving its cash flow position by pressuring suppliers, but the board believed the short-term measures were unsustainable.

In an interview with the Financial Times in October, Tavares expressed confidence that he could normalize the situation by the end of the year. Stellantis confirmed on Sunday that it would maintain its 2024 guidance.

“The narrative is. . . There is a limit to cost cutting, blah blah blah, please tell consumers that,” Tavares said. “I think if we don’t make consumers happy today…” . . We’re disappearing.”

He also spoke out against industry calls to weaken European regulations aimed at reducing carbon emissions, warning that delays in switching to electric vehicles would ultimately result in higher costs.

“Carlos believes that you don’t change the rules in the middle of the game. You have to be on the right side of history,” said one person familiar with his thinking.

Tavares did not respond to a request for comment.

His austerity measures were notorious within the company, with critics saying he had “sunk to the bone”. At times, IT spending was cut so sharply that thousands of vehicles were lost in France, insiders report. In another case, a supplier was told that he could not be paid because the person responsible for handling the payment was on maternity leave and the company had not hired a replacement.

Guests invited to the Ellesmere Port factory in the UK this year were served drinks from a coffee machine more than 100 miles from the Luton factory because employees there were not allowed to buy coffee machines.

People close to Stellantis said the company is on track to improve its financial performance. But finding a successor to Tavares to take on the job will be a challenge even for Elkann, who is known for his talent spotting after picking Sergio Marchionne out of nowhere to run the near-bankrupt Fiat in 2004.

The Agnelli family scion also picked Benedetto Vigna, an electrical components specialist from STMicroelectronics, to head Ferrari in 2021 just so the luxury sports car brand could thrive under his leadership.

People with knowledge of the deliberations said there were “good internal candidates” but the board would also consider external options. The group said the process to appoint a new chief executive will be completed in the first half of 2025.

Philippe Houchois, an analyst at Jefferies, said Elkann’s track record indicated “a broad search” not limited to the auto industry.

Exor, the Agnelli family’s holding group with assets worth 33 billion euros in 2023, owns a 14.2 percent stake in the Paris-listed automaker, making it the largest single shareholder.

Since the merger with PSA, several Italian governments have expressed disappointment at being unable, unlike their French counterparts, to take shares and a seat on the group’s board. The state-owned Bpifrance holds a 6 percent stake worth more than 2 billion euros.

Tensions with Rome peaked in October when Tavares was criticized by Italian lawmakers who blamed cost pressures on regulatory requirements that had created “tensions” in the supply chain. “It’s not rocket science. “It was all predictable,” said the defiant car boss.

“It was time for Tavares to go, but the change in leadership requires responsibility, securing jobs and skills,” Tommaso Foti, a senior member of Giorgia Meloni’s Brothers of Italy party, said on Monday.

Italian lawmakers are hoping for assurances about the group’s domestic operations and long-term prospects for workers, but union bosses there and in France fear there could be further cuts under his successor.

“The new boss will have to restructure the group as we continue to be losers,” said a union leader who wished to remain anonymous. “They focused on margins and dividends and forgot about the market, despite the iconic brands under its umbrella.”

Additional reporting by Leila Abboud in Paris