Why did the PSA-FCA deal fail?

PSA Group CEO Carlos Tavares has a contradictory attitude towards electric vehicles. He once said: "We will sell electric vehicles to environmental enthusiasts." FCA has always been reluctant to invest in electric vehicles.

However, the planned merger between PSA and FCA will enable the two companies to share the development costs of electric vehicles and eventually offer electric vehicles worldwide. But now it seems that the negotiations between the two parties to finalize the merger are threatened by the new coronavirus epidemic. After the merger, PSA and FCA will create the world's fourth largest automaker. The merged company will own a total of 14 brands including Peugeot, Citroen, Opel, Fiat, Alfa Romeo, Maserati, Jeep and DS.

It is understood that the deal, which the two parties are scheduled to finalize in early 2021, is facing challenges brought by the epidemic. An internal source said: "The development of electric vehicles requires large-scale investment, so the two groups need to complete the merger, but they must realize that in the current economic situation, in order to successfully complete the merger, the original financial terms need to be reviewed." The COVID-19 epidemic has caused automobile manufacturing plants in Europe and the United States to stop production.

The United Auto Workers (UAW) union revealed that two FCA factory employees have died after contracting the coronavirus. Kelley Blue Book analyst Karl Brauer said that PSA and FCA now need to reconsider the financial terms of the merger. "The market value of the two companies, revenue forecasts, sales forecasts for 2020 and beyond, all these estimates now basically need to be re-evaluated.

"A PSA spokesman told AFP that the merger between the two parties still makes sense and it is inappropriate to speculate whether the agreement will change. The two parties announced their decision to merge in October last year, so the two companies may have been considering how to expand the production of electric vehicles by combining resources.

In 2018, Tavares said all of the company’s models would be electrified by 2025. Two years later, PSA has only announced sales of its sole electric car, the Peugeot 208 EV with a 50kWh  battery . Yet Tavares believes PSA is on track to meet its 2020-21 EU emissions targets.

On the other hand, FCA needs to buy credits from Tesla in order to meet EU requirements in the European market. FCA does not have a thorough plan for the development of electric vehicles, so the merger with PSA can theoretically bring great help to the group. Previously, Tavares said that after the merger, its electric vehicle cells will come from the two factories jointly established with Total. The factories are expected to be put into production in 2023, aiming to achieve an annual production capacity of 1 million electric vehicle batteries by 2030.

In the US market, FCA is likely to launch two more electric vehicles. Currently, the only new energy vehicle sold by the company in the US is the plug-in hybrid version of the Chrysler Pacifica.

FCA may launch the 500e with a longer range and the Centoventi pure electric model with a unique external battery design in the United States. However, PSA's Jeep brand, which is famous for its four-wheel drive off-road models, may be more in line with the appetite of American consumers. The company's five-year plan includes launching four pure electric vehicles and 10 plug-in hybrid models by 2022.