How Fiat's Chrysler Stake Could Be a Boon for EVs

A new partnership between Italy’s Fiat Auto (s FIA) and Chrysler is no Renault-Nissan (s RNO). It involves zero infrastructure deals or grand electric vehicle schemes. As Chrysler chief Bob Nardelli said today when he announced Fiat’s 35-percent equity interest in the smallest of the Big Three, the automakers’ markets line up nicely: Fiat with small and midsize cars in Europe and South America, Chrysler with minivans, pickups and SUVs in North America. But that’s unlikely to be enough to keep two struggling automakers alive through a bloody industry shakeout.

Even a short-lived partnership, however, could be a boon for U.S. fuel economy, and possibly electric vehicles. It would allow Fiat to expand into North America — where it has already planned to re-introduce its Alfa Romeo luxury sports cars with support from BMW. The sixth-largest automaker in Europe by unit sales, Fiat’s stake was acquired not with cash, but an agreement to retool one of Chrysler’s plants, which would provide it the benefit of technology and expertise needed to compete with next-gen vehicles like Daimler’s (s DCX) electric Smart and BMW’s (s BMW) Mini E. (Fiat’s new Alfa Romeo subcompact, the MiTo, shares enough architecture with the Mini that the companies have discussed joint use of components and systems.)

Giving subcompact Fiats electric drive and decent battery range would be less complicated than Chrysler’s plans to electrify its heftier fleet. With help from Fiat, Chrysler could also roll out some of its own fuel-efficient subcompacts to boost the average fuel economy of its fleet, a workaround for tightening efficiency standards. As the Wall Street Journal explains, the deal could also serve as evidence of Chrysler’s viability as it seeks additional loans from Congress.

One thing is sure: Chrysler will need capital from somewhere, and that’s one thing Fiat — which carries billions in debt– can’t offer. For Fiat and Chrysler, massive debt, low sales volumes (2.5 million and 2 million vehicles last year, respectively), and a recession expected to last for years could keep the partnership from growing into the big EV player it could be in sunnier economic times.

Until then, there’s always Renault-Nissan. Analyst Mike Omotoso with J.D. Power and Associates told us last week he considered Nissan (s NSANF) a possible buyer for at least Chrysler’s ENVI divsion. He’s not alone: Center for Automotive Research chairman David Cole told BusinessWeek today, “Even after this, we could see Renault-Nissan, for example, come into it. We shouldn’t jump to premature conclusions that this would be an end, it could just be a beginning of more to come.”