Jeep Funds Electric Future With a 16 MPG Gas-Power Behemoth

(Bloomberg) -- Jeep, the iconic American SUV brand, wants to convince the world it’s going green, even if it doesn’t yet have the electric vehicles to show it.

The itinerary this week of Christian Meunier, the global head of Jeep, shows the two worlds the brand is straddling. For a few days, he was off-roading in Moab, Utah, in electric concept versions of the Wrangler, gleaning product feedback from the brand’s die-hard fans who were along for the ride. Then it was on to the New York International Auto Show -- and back to reality. 

The rugged brand won’t have a fully-electric SUV for sale until next year. So in Manhattan, Meunier showed off long-wheelbase versions of the Wagoneer and Grand Wagoneer, Jeep’s long-awaited entrée to the lucrative three-row SUV segment. The extended versions feature a new twin-turbo engine called “Hurricane.” With that boost, the Grand Wagoneer L gets 16 miles a gallon city and highway combined.

It’s not exactly in sync with Jeep’s new “Zero Emission Freedom” tagline. But like much of the auto industry, Jeep owner Stellantis NV is betting profits from gas guzzlers will fund the electric future. While other global brands have set targets for phasing out the combustible engine, Jeep still hasn’t set a date for going fully electric, and 97% of all vehicles sold in the U.S. are gas burners. 

“We’re in a transitional period and there are customers that have some needs,” Meunier said in an interview Tuesday. “The vision is zero emission freedom, period -- that’s where we’re going for Jeep. The problem is you can’t do that overnight.”

The U.S. portion of Stellantis is just getting into the race. In its previous life as Fiat Chrysler Automobiles NV, the late Chief Executive Officer Sergio Marchionne turned Jeep into a global cash cow, but resisted investing in electrification, saying it was a money loser. 

Stellantis is far from the only traditional automaker to use profits from gas-burning vehicles to pay for investments in EVs. BMW AG also exhibited a hulking SUV in New York, and General Motors Co. and Ford Motor Co. continue to rely on gas-powered SUV and truck sales. 

And Jeep has been introducing hybrid vehicles. The Wrangler 4xe, unveiled in late 2020, already makes up 25% to 30% of Wrangler sales, and a new hybrid Grand Cherokee shown in New York will make its way to dealers later this spring.

Playing Catch-Up

But Marchionne’s hold-out strategy has put the company further behind the curve than rivals, as Tesla Inc. races ahead with ever bigger and bolder battery ambitions. Stellantis, which has been at the bottom of the Environmental Protection Agency’s fuel economy rankings for years, had a fleet average of 21.3 miles per gallon for the 2020 model year, versus an industry average of 25.4 miles.

Its recent merger will help it meet tighter emissions targets while the push into luxury will cushion the higher cost of EV powertrains, said Sam Abuelsamid, principal research analyst at Guidehouse Insights.

“The future is absolutely going to be electric,” Bob Carter, executive vice president of Toyota Motor Corp.’s North American business, said in an interview at the show. “What’s being debated in the industry, that gets a little misrepresented, is how long the transition’s going to be.”

Americans’ love of big SUVs has only deepened with the need to escape during the pandemic, but high gas prices could dent demand for the jumbo Jeeps, said Jessica Caldwell, executive director of insights at Edmunds.

“There’s probably less fringe buyers that want to make that purchase, but this has been a staple segment in the industry,” Caldwell said. “There will still be a market for this vehicle.”

Jim Morrison, who leads Jeep in North America, said gas prices could be a factor for the Wagoneer, but buyers of luxury SUVs like the Grand Wagoneer, which starts at $88,640, have been less sensitive to pump prices. The L versions have a good business case because some customers only want a roomier option, he said.

“The customers are what the driving force is for us,” he said. “They needed more space.”

Regulations Push

The regulatory environment is also putting pressure on Jeep to electrify faster. Earlier this month, the Biden administration rolled out more aggressive gas mileage targets to spur faster development of electric cars. The new rules require automakers to achieve average fuel efficiency of 49 mpg for their overall fleets by 2030 under the agency’s testing regime.

Stellantis disclosed in a regulatory filing last year that it could be on the hook for as much as 684 million euros ($741 million) to cover fuel-economy penalties. But, currency fluctuations and incremental sales may bump the company’s total liability to 840 million euros ($908 million).

Jeep has been taking the prospect of more stringent fuel economy rules into account with its product plan for the past two years, and an onslaught of large electrified SUVs are coming, according to Meunier. 

“We’ve been very aggressive so that we can be ahead of the game, whatever happens,” he said. 

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