About the company

As one of the world's largest automotive groups, Stellantis was created in 2021 by the merger of the PSA Group and FCA (Fiat Chrysler Automobiles). It deals with a broad portfolio of automobiles, ranging from passenger cars and compact cars to utility and luxury models, owning iconic brands such as Peugeot, Citroën, Fiat, Chrysler, Jeep, Dodge and Maserati. The company aims to have more than 70% of its sales in Europe coming from electric vehicles by 2030, and plans to invest billions in new technologies including hybrid models.[1] Stellantis' strengths include its focus on sustainability, its distinctive approach to different markets, and its flexibility in product offerings. This strategy has so far ensured its competitiveness in all segments, from economy cars to luxury vehicles.

The downgrading of forecasts is not only for Stellantis

On 30 September 2024, Stellantis published its new forecasts, which indicate a significant slowdown in sales. They mainly concern the target inventory in the US by the end of the year, which is to be reduced by 200,000 units to 330,000 units. Further, the company lowered its adjusted operating income margin from 7% to 5.5%, a significant drop from previous double-digit figures. Stellantis is also forecasting negative cash flow in the range of -5 billion to -10 billion euros (-5.58 billion to -$11.17 billion). These changes mean that the Group is facing serious problems, particularly with regard to deliveries to North America. Their decline and reduced margins may affect its ability to invest in the future and innovate. However, the company still believes that its plans to improve performance will deliver results in 2025 and beyond.[2][3] In addition to the company, other European manufacturers such as Volkswagen, Mercedez Benz and BMW have also warned of lower sales. The share prices of Stellantis and Volkswagen[4] were down 12.5% and 3.5% respectively in their Monday trading, which also had a negative impact on Europe's main STOXX 600 index.[5]*

Stellantis share price development over the last 5 years. (Source: Google Finance)*

European automotive crisis

Reduced earnings forecasts for European carmakers hint at wider problems for the sector, which is the driving economic force of the old continent. One in three European car factories is not operating at full capacity, according to data from research agency Bloomber Intelligence. For example, one Stellantis factory in Mirafiori, Italy, producing the all-electric Fiat 500e, lost more than 60% of its production in the first half of 2024, and some German Volkswagen factories are even at risk of closing altogether. European manufacturers are unable to compete with their Chinese rivals, who have captured a large part of their home market and are flooding the European market as well. It is the Chinese market that used to be key for European car manufacturers. China's competitive advantage lies in its much lower production costs, while Europe also suffers from a shortage of skilled labour and the components needed for new vehicles with advanced technology and electronics. In addition, there is also a reluctance on the part of consumers to spend money on buying expensive electric cars, the production of which, under pressure from the European Union, has begun to dominate among the major car manufacturers. By contrast, Chinese firms are offering more affordable models, including a wider selection of hybrid vehicles, whose popularity is making a comeback.[1]

Stellantis has hinted at problems as early as the first half of 2024

Stellantis's financial results for the first half of 2024 already bore signs of declining sales, despite the company's efforts to push product innovation. Sales fell 14% year-on-year to €85 billion ($94.35 billion) and net profit slumped 48% to €5.6 billion ($6.22 billion). In a report on these results released on July 25, 2024, the firm previously reported competitive challenges in the North American market. On the other hand, reductions in direct materials, labor and logistics costs helped mitigate the impact on its revenue. Stellantis announced a €6.7 billion ($7.43 billion) return of capital to investors, which includes an accelerated share buyback program.[2]

Conclusion

Despite the challenges it faces, Stellantis is striving to create room to improve its performance and adapt to a changing market. Although weak sales in North America and strong Chinese competition pose challenges, it has historically demonstrated the ability to respond quickly to challenging conditions. Steps such as cost-cutting and plans to launch new models show a determination to remain competitive. The company is clearly aware that the key to success will be not only short-term problem solving, but also a long-term strategy for sustainable growth. [1]

Adam Austera, Principal Analyst at Ozios

* Past performance is no guarantee of future results.

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

[1] https://www.dw.com/en/volkswagens-crisis-how-can-europes-car-industry-survive/a-70231806

[2] https://www.stellantis.com/en/news/press-releases/2024/july/first-half-2024-results

[1] https://www.stellantis.com/en/responsibility/carbon-net-zero-strategy

[2] https://www.euronews.com/business/2024/09/30/italys-stellantis-becomes-latest-car-giant-to-issue-profits-warning

[3] https://www.stellantis.com/en/news/press-releases/2024/september/stellantis-updates-2024-financial-guidance

[4] Evolution of Volkswagen Koncern's share price over the last 5 years:*

https://www.google.com/finance/quote/VOW3:ETR?window=5Y

[5] Development of the value of the STOXX 600 Index over the last 5 years:*

 https://www.google.com/finance/quote/SXXP:INDEXSTOXX?window=5Y