The Italian car industry has missed the electric age

The Italian car industry is doing badly. Future models of the Fiat, Alfa Romeo and Lancia brands, which belong to the French-controlled Stellantis Group, will be built in Poland, Morocco, Spain or Serbia – not Italy. The Turin Grugliasco factory was closed at the end of 2023 and production at the legendary Mirafiori plant dropped to just 12,000 cars in the first quarter.

For almost a year, the Italian government has been trying to increase annual production from 752,000 cars and light commercial vehicles to more than one million a year in negotiations with Stellantis management – so far without success. Rome is almost desperate to attract Tesla or Chinese manufacturers. But they don’t bite.

Only Ferrari and Lamborghini were successful

Car production in Italy has been declining for years. Apart from the Italian brands Stellantis, only niche (very successful) Ferrari and Audi subsidiary Lamborghini manufacture in the country. Many distributors supply Stellantis Italian factories. Their productivity also decreases because of that.

There are positive examples such as tire manufacturer Pirelli and brake manufacturer Brembo. These exemplary companies focus on quality, innovation and class. They have strong exports and count manufacturers worldwide among their customers.

But most of the 2,167 companies with 166,000 employees, most of them in northern Italy, are small and focused on the combustion engine. Brembo board chairman Matteo Tiraboschi believes that most of them will not be able to make the change. He cautions against expecting a delay in industry change.

The former Fiat Chrysler Group (FCA), which has been part of Stellantis since 2021, failed to invest in electric drives. That is why very few electric cars are produced in Italy today. And the electricity share of new registrations in March 2024 was only 3.3 percent.

Considering insufficient productivity in Italian plants, Stellantis boss Carlos Tavares even threatened to close plants in Turin Mirafiori and Pomigliano in southern Italy.

Tavares complains that although Rome has repeatedly announced incentives to buy electric cars, implementation is taking too long. “So we are missing the opportunity to make more electric cars in Italy.” Prime Minister Meloni responded with contempt: He demanded that Rome participate in Stellantis. And Rome is trying to delay the end of the combustion engine in Europe in 2035 as much as possible.

Exports to Germany increased

Brembo manager Tiraboschi criticizes the lack of “real industrial policy and investment in strategic sectors”. “Above all, there is a lack of payment centers. The government must help build the infrastructure,” he says.

The boss of Stellantis Tavares is calling on suppliers to reduce their costs and follow the group to cheaper countries such as Algeria or Morocco. He demands a reduction in prices, even though many of the suppliers are doing poorly due to rising costs of materials and equipment and general inflation.

A joint study by employers and trade unions says that integration must be promoted and companies professionalised. The sector has great potential, but suffers from being too small and fragmented.

Federico Magno, managing director at management consultancy Porsche Consulting, is confident that this will succeed. “It is about preserving strengths such as the cost advantages, flexibility and speed of Italian suppliers and at the same time taking advantage of the opportunities of automation, digital intelligence and artificial intelligence to be part of the value chain.”

In his opinion, cooperation with companies from other sectors and close cooperation with top universities in Italy and abroad are also possible. He sees great potential in “creating an alliance to develop new technologies”. “It is not the new subsidies, but the expanded options and accelerated depreciation like eight years ago under the Renzi government that are creating an investment environment.”

Consultant Magno calls on car suppliers to professionalize their management, for example by bringing in private equity investors. “The integration of Italian companies in the German value chain is important. Many suppliers in Italy have realized how important it is to be involved in the product development phase of German manufacturers. Anyone who understands this can anchor and continue to be part of the production network in future days.

At least there are early signs of success. According to the latest figures from the German-Italian Chamber of Commerce, the Italian car industry increased its sales to Germany by 14 percent to 10 billion euros in 2023 compared to the previous year.