Tomorrow's challenge

Peugeot well positioned for yesterday's car market

In one sense, Peugeot deserves a gold star. The French carmaker is cutting costs neatly. PSA Group Chief Executive Carlos Tavares has lifted the automotive division's operating profit margin from 5 to 6.8 percent - well above the 6 percent he is targeting by 2021 and ahead of analyst expectations. Yet a radical shakeup in the car industry means getting up to speed with fuzzier stuff like self-driving cars, electric vehicles and new mobility services.

That's a big ask for smallish Peugeot. The French group's rivals are pushing the pedal to the metal. German rival Daimler on July 26 merged its taxi-hailing app Mytaxi with UK-based rival Hailo, creating Europe's strongest competitor to Uber. Earlier this year, Toyota teamed up with Uber, General Motors with Lyft and Fiat Chrysler signed a partnership with Google on autonomous driving. The moves are driven by the fear that driverless vehicles and new services like Uber will reduce the need to own a car.

In comparison Peugeot is held up in traffic. The Centre of Automotive Management, a think tank, last year ranked the group as the third-worst performer on so-called connected-car innovations. In a 2016 study on innovations related to all-electric vehicles the think tank does not even mention the French group.

Tavares is aware of the gap. In recent months he has bought stakes in startups focusing on car-sharing, innovative parking solutions and aftermarket services.

Yet the 100 million euros earmarked by Tavares for venture capital investments fall short of the financial firepower of larger rivals. Volkswagen in May forked out almost three times as much for a stake in ride-hailing app Gett. And VW's Chief Executive Matthias Mueller framed the acquisition as just the first step in a broader push into new services. He thinks that new mobility services will generate revenue "in the multi-billion" range by 2025. In that light, Peugeot's target of 300 million euros in additional services revenue by 2021 looks timid.

The group's improving profitability is an important precondition for coping with the coming technological revolution. Yet investors should be aware that Peugeot's real challenges go well beyond operating margins and quarterly sales.