Reference no: EM133653433

Case: In May 2023, European automaker, Stellantis AG announced it had halted construction of its $5 billion Windsor electric-vehicle (EV) battery manufacturing plant due to a lack of funding by the Canadian federal and provincial governments. The factory was expected to be the first electric-vehicle battery plant built in Canada.i A spokesperson from Stellantis said, "the Canadian Government has not delivered on what was agreed to, therefore Stellantis and [South Korean battery-maker] LG Energy Solution will begin implementing their contingency plans."

After a leak that Volkswagen received approximately $13.2 billion to build an EV battery plant in St. Thomas, Ontario, Stellantis wanted more government support, different from its original agreement.

The European automaker said it would be willing to step away from the Windsor construction project and lose millions of dollars in set-up costs in order to gain billionsiv more in funding from the U.S. federal government. In 2022, the U.S. federal government implemented the U.S. Inflation Reduction Act which contained financial incentives to encourage electric vehicle companies (and those in their supply chains) to set up their factories in the U.S., encouraging U.S. job creation and economic development.

In the same year, the U.S. National Highway Traffic Safety Administration opened 3 investigations of safety problems in 1.65 million Stellantis vehicles. One issue was engines staling due to camshaft sensor problems, and another issue was a transmission problem causing Chrysler plug-in hybrid minivans to lose power. No crashes or injuries were reported and investigators said Stellantis was cooperating with the investigation.

Stellantis, one of the world's largest automakers that made Chrysler, Ram, Fiat and other car brands,vi was considered to be a critical step for Canada moving forward in developing a full electric-vehicle supply chain. In addition to the Volkswagen plant, the establishment of a Stellantis manufacturing plant would help attract a range of related businesses that could mine battery components, manufacture parts, assemble vehicles and recycle batteries.

Industry Minister François-Philippe Champagne said ""These large manufacturing facilities, most of them will be decided within the next six to twelve months in North America. So therefore, either you win now, or you're out of that industry for 50 years or until there's a new technology."

"The Stellantis plant [had an estimated] annual production capacity of 45 gigawatt hours, which could make enough batteries for more than 400,000 vehicles a year, with the first production happening as early as 2024." The "Volkswagen's plant, with twice the production capacity, could produce enough [batteries] for nearly a million vehiclesannually, with initial production starting in 2027." The Volkswagen deal was expected to employ about 3,000 workers.

The automotive sector had always been an important part of the Canadian economy that helped provide good-paying jobs for workers, and as a result, helped support their communities. But things now were changing. As the industry was shifting from gas-based vehicles to electric ones, new plants had to be built to accommodate this change in technology. From electric cars, to batteries, and to software technologies to support these vehicles, auto companies across the globe were looking to governments for the 'best financial deal' before they decided where and when they would build their new

plants.

"Windsor-Tecumseh MP Irek Kusmierczyk said Saturday that he [was] confident construction [would] continue." xii "Everyone recognizes, all the partners recognize, that this is a generational investment and really, this is the future of the auto sector," Kusmierczyk said. "It's the future of Canada and our community and I can tell you that all partners are absolutely committed to this project, both to the battery plant investment and also the investment at Windsor assembly plant."

Windsor Mayor Drew Dilkens also expressed a similar note. The Windsor plant would create 2,500 jobs and be large enough to fit 114 hockey rinks.xiv The Unifor National President Lana Payne also emphasized the importance of the creation of 2,500 jobs.

While negotiations were ongoing, specific terms were being kept private and were not being released to the public and other companies.

Some opponents argued that the Canadian government had already given too much free money to corporations and now had set a precedent for other companies to expect the same. The Canadian Taxpayers Federation (CTF), a non-profit group concerned about government overspending and debt, expressed that the government should reject Stellantis corporate welfare demands. ""If you hand out billions of dollars in taxpayer cash to one auto company, of course the others will follow," said Jay Goldberg, the federation's Ontario director. "Taxpayers can't afford to throw money at every company

under the sun and Ottawa needs to say no before it wastes billions more."

The CTF explained corporate welfare was nothing new. Between 2007 to 2009, federal, provincial and local governments had spent $352.1 billion of taxpayer money on corporations. xviii And in some cases, it was money the government did not have available to spend. According to one Fraser Institute report, Canadian "federal and provincial government debt has nearly doubled (on an inflation-adjusted basis) from $1.1 trillion in 2007/08 to $2.1 trillion in 2022/23."

But can a large capital investment now be good for Canada's economy in the future? According to some research, "not only is corporate welfare unlikely to help the economy, but it may actually hurt it. Government intervention, including handouts to corporations, interferes with the private decisions of firms, investors and consumers, leading to a misallocation of resources and a less-efficient economy. A less-efficient economy means lower economic growth and less widespread prosperity, despite the benefit to select firms." xx The result is less taxpayer dollars are available to go towards government services like education, healthcare, affordable housing and other important services individuals need and rely on.

On the other hand, advocates for the poor argued there are many communities that need these high-paying jobs, and Windsor is one of them.xxi In the City of Windsor, poverty has long been higher than provincial and federal averages. In 2023, more than one in five children lived in low-income households. In addition, "a 2018 food-system assessment conducted by the city's health unit found that as many as one in 10 households and one in four low-income households [experienced] food insecurity."

By 2023, housing costs in Canada had reached an all-time high. The average price of a home in Toronto or Vancouver, for example, was over $1 million, with average home prices elsewhere more than $760,000 forcing many individuals out of the housing market.

Habitat for Humanity, a charity that had provided no-interest loans to lower-income families to buy a home for nearly four decades, has now seen "its client base shift to a higher income bracket as the typical home price in the country has jumped 40 per cent in five years." "The charity is increasingly backstopping mortgage loans for higher- income households, including those earning about $100,000 a year, in yet another sign of how unaffordable Canada has become."

Although the City of Windsor was a smaller city with a population of approximately 230,000, it had become a focal point for investors and growth opportunities. The city was a region close to 80 million Americans within a four-hour drive. The Canada-U.S. border bridge [was] the busiest international trade route in the world." In addition, several projects were underway. First, a second International Bridge was being built (costing $4.1 billion), a new freeway was built to improve transportation, and a $2 billion mega-hospital was also being constructed. The city was also seeing huge growth in the fields of pharmaceuticals, agriculture, education, and more.

But many economists agreed the cost of living had also increased which made these gains less significant to the average person. In July 2023, the Bank of Canada had raised interest rates by a quarter point, bringing it to the 10th rate hike since 2022 to help control inflation.xxxi In 2023, Canada's household debt was also at an all-time high, with third-quarters related to home mortgages. According to one global report, Canada had the highest level of household debt in the G7. The G7 included Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

While many stakeholders recognized the need to shift to electric vehicles due to climate change, consumers were not always willing to buy them. Why not? The two main reasons were high prices and charging concerns. The average price of a new EV was approximately $US64,000. Hybrid models were a bit cheaper at $US39,000. However, drivers getting stranded on the road when their EV's run out of power had frustrated many consumers who complained about the lack of charging stations. By July 2023, the supply of unsold EVs increased by 350%, about twice the industry average. Some industry analysts expressed concern that if EV makers cannot reduce prices and increase charging stations, industry consolidation and the slowing of development may occur.

By July 2023, Stellantis and the Governments of Canada had announced a new

agreement had been reached, and Stellantis decided to continue to build its EV battery plant in the City of Windsor. Meanwhile the Canadian government had not yet solved some of the major hurdles to transition to EVs. Part of the transition involved finding an adequate supply of minerals for batteries and expanding the infrastructure needed for greater electricity generation.

Industry analysts had agreed there was still work ahead. Each country, region and community would have different circumstances and needs. In the end, the change may not be a complete shift away from gas vehicles, but a multi-option path to carbon neutrality that included hybrids, hydrogen and gas alternatives, and of course, EVs.

Question 1. Explain how the six (6) external environmental forces are impacting the company Stellantis. Provide a detailed analysis using all case examples.

Question 2. Explain how the Classical management philosophy may help Stellantis and why? Provide a detailed explanation using examples from the case.