CEOs Get the Industrial Policy Boot

Federal subsidies can’t save the leaders of Intel and Stellantis

WSJ editorial. 

"It’s a hard-knock life for underperforming CEOs these days, as Intel’s Pat Gelsinger and Stellantis’s Carlos Tavares are learning. Their resignations this week are a reminder that business results still matter even if they were following government designs.

Mr. Gelsinger announced his retirement on Monday after a more than 30-year career at America’s storied computer chip maker during which it lost its competitive edge. Bloomberg News reports that he was forced out by Intel’s board, which had lost confidence in his plans to turn around the struggling company.

When Intel tapped Mr. Gelsinger as CEO in 2021, the company was at a crossroads. Some 15 years earlier, former Intel CEO Paul Otellini had passed on the opportunity to make chips for the iPhone. His successors then failed to position the firm for growth by investing in chips to power artificial intelligence.

Intel for a time could ride the profits from its data server and PC businesses. But its lateness to the AI race, trailing Nvidia and AMD, was costly. Mr. Gelsinger then looked to government support for its lagging foundry business. His goal was to compete in manufacturing with TSMC and Samsung.

He lobbied Congress and the Administration to pass the $280 billion Chips Act to subsidize U.S. plant expansions, which were expected to cost more than $100 billion. Last week the Biden Administration awarded Intel a $7.9 billion grant for chip projects in New Mexico, Oregon, Ohio and Arizona.

Despite the promised subsidies, Intel has struggled to execute. Reuters reported last month that Intel had to cancel a deal with Google’s self-driving taxi company Waymo amid manufacturing challenges. Apple, Qualcomm and others have passed, for technical reasons, on using Intel’s new 18A architecture to manufacture cutting-edge chips.

Despite the promise of subsidies, Mr. Gelsinger in August announced 15,000 layoffs, and Intel is expected this year to record its first annual net loss since 1986. Its stock price has plunged by 43% over the last year while Nvidia’s has surged 205% and TSMC has climbed 100%.

Mr. Tavares’s resignation on Sunday also followed a year when the car company’s profits, market share and stock price have plunged. Mr. Tavares previously led Europe’s PSA Group, which merged with Fiat Chrysler in 2021 to form Stellantis. He never did understand U.S. truck- and SUV-loving consumers.

While a vehicle supply shortage and inflation boosted Stellantis’s profits during the pandemic recovery, Mr. Tavares failed to invest in developing newer models of popular SUVs and pick-ups for the U.S. market while he steered billions into electric vehicles and plug-in hybrids. Mr. Tavares has compared the EV transition to a Darwinian struggle for survival.

But the market isn’t evolving as fast as governments in the U.S. and Europe have ordered. Stellantis dealers in the U.S. complained about outdated and pricey vehicle lineups that led to cars piling up on lots. Mr. Tavares infuriated the company’s European dealers and competitors by opposing an easing of the continent’s stringent auto-emissions rules.

European dealers warned that EVs weren’t selling. No matter. Mr. Tavares this spring formed a joint-venture with China’s Leapmotor to export low-priced EVs to Europe. His plan was undermined by Brussels’s recent imposition of tariffs on Chinese EVs. Phasing out profitable gas-powered models in the U.S. has made it harder for Stellantis to invest in EVs to meet government mandates.

Stellantis has been axing tens of thousands of workers in manufacturing and engineering to reduce costs. Its board may have concluded that this won’t lead to long-term business success. It’s hard truckin’ nowadays for CEOs, especially when government tells them how to run their business."