Stellantis N.V. (STLA) on Q2 2021 Results - Earnings Call Transcript

Operator: results for First Half 2021. For your information, today's conference is being recorded. At this time, I would like to turn the call over to Andrea Bandinelli, in-charge of Stellantis' Investor Relations. Mr. Bandinelli, please go ahead, sir. Andrea Bandinelli: Thank you, Courtney and welcome to everyone joining us today as we review Stellantis first half 2021 results. Earlier today, the presentation material for this call as well as related press release was posted under the Investors' section of Stellantis's Group website. Today, our call is hosted by; Carlos Tavares, the Group's Chief Executive Officer; and Richard Palmer, the Group's Chief Financial Officer. After both Mr. Tavares and Mr. Palmer present, they will be available to answer questions. Before we begin, I want to point out that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the Safe Harbor statement included on Page 2 of today's presentation. And, as customary, the call will be governed by that language. Now, I would like to hand over to Carlos Tavares, CEO of Stellantis. Carlos Tavares: Ladies and gentlemen, welcome. Welcome to this 2021 H1 Stellantis financial results announcement session. We are delighted, Richard Palmer and myself to be with you today and I would like to thank you for your time. We know that you are highly busy people and we value your interest in Stellantis. I trust that you and your families are well and please take care. Let's get started. It's the least we could say to say that Stellantis had a strong start on H1 2021. On a pro forma basis, we were able to achieve a record profitability of 11.4% of adjusted operating income margin. It is also clear that we have delivered 46% improvement of our net revenues. So we are off to a strong start in Stellantis since we closed at the beginning of this year. It's important to recognize that as it is bringing a lot of additional confidence and additional energy to our teams. It is also very fair to mention that we did a stellar performance in North America, with no less than 16.1% of adjusted operating income margin, which was very well supported by a very robust Enlarged Europe with 8.8% of adjusted operating income margin. So, two strong engines, North America and Europe putting the company forward to support the 11.4% record profitability that I highlighted in my initial comments. It's something that of course, the regional teams are proud of, and rightly so. And I would like to also add to this excellent results of North America and Europe. The leadership of our teams in South America as we are clearly the market leader in Latin America with no less than 23.6% market share, up 620 basis point year-over-year, and with also a very robust AOI margin of 6.6%. So, a strong leadership in Latin America. And of course, all of this has been benefiting from a very strong tailwind, which is a very exciting start of the execution of our synergies plan. This is really a differentiator of Stellantis vis-a-vis its peers. We have the opportunity through the merger to bring synergies opportunities to the table. And the least we could say is that, with no less than EUR 1.3 billion of synergies - net cash synergies in H1 2021. We are off to a very strong start with a very significant additional amount of synergies on the bottom-up perspective which are brought to us by our people, which also means that they understand that this Stellantis new company is going to benefit from the merger of former FCA and former PSA and everybody in the organization is now clearly understanding and supporting this move, which is also great news for all of us. Last but not least, we are now racing on the electrification we are all in. We already have currently on sale, no less than 11 pure BEVs. And within the next 24 months, we will add to the existing 11 BEVs, an additional 11, which means that within 24 months, we'll have no less than 22 pure BEVs on sale, which is demonstrating that we are executing our electrification journey as we presented to you in July this year. Last but not least, I would like also to say that over the last six months, the first six months since we created Stellantis, we have set up a new top executive team, a new business governance way. And I would like to share with you the fact that this governance is fully operative, we are making our decisions, we are preparing those decisions in a highly focused and professional way. And I would like to share with you that you have in front of you a very happy CEO, happy to see that the teams are now very much business-driven, business-focused and doing their job at a very high level of synthesis which given the size of the company is paramount to our success. So those are some of the highlights I wanted to share with you and now I will move to the region business highlights and start with North America. As I said, no less than 16.1% AOI margin for our North American operations, despite unfilled semiconductor orders, with a strong pricing and mix improvement. We know that we are now the highest US retail average transaction price carmaker. In June, we were at $48,000 per unit and we are the highest average transaction price carmaker, excluding the premium carmakers. We also see that our all-new Jeep Wrangler 4xe technology is the number one selling PHEV in the US retail market, which is paying tribute to the attractiveness of our products. Here, this case is the Jeep Wrangler 4xe with electrified technology in this iconic brand, which means, freedom. Our all-new Grand Wagoneer production has started. And we see that the market is appreciating strongly this product appeal. And we see that the sales and orders are growing quite nicely moving forward. We also know that we are now preparing for the all-new Jeep Grand Cherokee 2-Row that will be presented at the New York Auto Show. Last but not least, we are pleased to be now entering the top 50 diversity company group, which is something that pays tribute to the way the company is leveraging our diversity and welcoming our diversity, which is of course something that we are proud of, and a direction that we will keep moving towards in the future. I would like also to highlight the fact that, yes, we have lost some market share, a limited market share, because we are managing the channel mix in a very thoughtful and business-focused way, which is, I think a reasonable trade off to the excellent AOI margin that we have delivered. And also that we have grown our market share in Mexico from 5.9% to 6.6%, which is also a good result from our local operations. Let's now move to the Enlarged Europe region with a very robust profitability of 8.8% AOI margin, which is better than the best ever result achieved by a former PSA, which is demonstrating that the turnaround of the former FCA Europe operations has now started. It's bringing the first results, not everything that we need, but the first results are there. And you can see that it's now already visible in the 8.8% AOI margin number that you have here. We continue to grow our market share in Europe and we - we're able to grow our market share by 80 basis points up to 23.1% versus H1 2020, which means, not only that we are growing market share but on top of that we are growing our profitability, which demonstrates that Europe is creating value for the company, and we are doing this in a full compliant manner regarding CO2, no fines paid in Europe, within large company with Stellantis, we are able to be, I would say, naturally compliant in this big market. We have also fixed the ELCINA report future by bringing an all BEV product, their EK9 to ELCINA report to supply the UK market, but not only, on LCV, but also on passenger vehicles NPV side of the business, which is I think, a very good news and this will complement what has been done in terms of turning around the efficiency and rightsizing the site to make it profitable for the future, which has now been done, thanks to the commitment of our teams, the support of the UK government and the great relationship we have with local unions. We are also expanding in Eurasia, growing share and delivering a better result by growing our LCV business as it was the plan, as I was telling you over the last few years, and now the results are coming and we are pleased to see that profit and market share are up. The final point, which is possibly one of the most importance is that, in June 2021, we were able to sign no less than 10 performance agreements in Italy. Thanks to the excellent collaboration and constructive dialogue with our Italian union partners. They completely understand what we are trying to do. They completely understand the transition in which we are now, the electrification journey and we were able to sign those agreements, thanks to the open mindset and the collaborative mindset that we right now have in Italy, which is a good sign for the future, and a good foundation to build even more performance that as we all know is the only thing that protects us. The last but not least, we announced that we are going to bring the third gigafactory of Stellantis to Italy, as we are now concluding our discussions with the Italian government. And we intend to transform our powertrain Termoli plant in gigafactory in the future. So those are the highlights for the Enlarged Europe. Let me now move to the next three and four regions, starting in South America. South America is demonstrating a very strong leadership in terms of market share, we could move from 17.4% in the H1 2020, up to 23.6% in H1 2021, which is an outstanding leadership. We are at 31.6% in Brazil and 27.7% in Argentina, so market leaders in the region, market leaders in Mercosur and the Fiat Strada is now the number one selling vehicle in Brazil. And we have as planned launched the lifecycle events and refreshments for the Fiat 2-Row and the Jeep Compass in April 2001. In Middle East and Africa, we are demonstrating a very strong profitability with 9.7% AOI wide margin and at the same time, we are growing share by 30 basis points to 11.9% in H1 2021. This is demonstrating that this region is also creating profitable growth, which is of course what we expect in terms of value creation. We're also pleased to see that now we have finalized the ramp up of the production of the Citroen Ami, which is a very important mobility tool for downtown areas, where we expect one day the IC products to be banned. And this is now moving forward, not only because cost and quality are exactly where they should be, but also because we have expanded this kind of product to a cargo version that will be perfect for the last mile delivery in downtown areas. In China and Asia Pacific, India and Asia Pacific, we are also slightly growing share. We had a very successful launch of Jeep Compass and Citroen C5 across in India. And we are moving forward very well in our new Chinese strategy. We are still finalizing a few discussions. But they are moving very well. It's a very deep change in our Chinese strategy and we'll be pleased to see some of those events become public during the next few months. And as I committed to you, we'll have a brand new Chinese strategy by the end of this year when we will present the long-term Stellantis strategic plan to the investors and to the public. I just want to convey to you that we are moving quite well in this direction and you will soon see some of the bricks of this strategy to be made public. If we continue now and move to the brands, I would like to give you some information about the G brand, our global SUV brand. Pricing power, as you can see is better than benchmark. So, we are somewhere the market leaders in terms of pricing power, which is a tribute to the sharp positioning of the brand, to the very disciplined way this brand has managed across the world. And you have here the translation of this discipline and this clear positioning on the pricing power. As I said, the Wrangler is now at a record level of US retail sales with 115,000 sales in H1 2021. We also have, thanks to the 4xe technology, a very impressive LEV mix of sales in Europe of 30% of this LEV mix of sales, which is exactly the right performance at the right timing, thanks to the right decisions that were made in the past - in former FCA on this brand. And we are also having the best-selling PHEVs in Italy for Compass and Renegade in their respective segments. As I said, South America is a place for Stellantis' leadership, and specifically, the Jeep leadership in the SUV segment with 14.9% market share in the segment. And we also enjoying record sales in Japan and Korea with the Wrangler and the Renegades. So, as you can see a very strong business for Jeep, very solid technology with the 4xe electrification proposal and very strong pricing power and market shares in the segments. So, very strong business moving forward. And of course, there is more potential to come. On the American brands, on the other American brands, we see that Chrysler is still with the Pacific at the number three selling PHEV in the US. And we still have some homework in the pricing power, but I can share with you that we have been improving significantly the profitability of Chrysler and we are now preparing for the rebound of this brand. And we'll tell you more by the end of this year, but the plans are moving quite nicely to a very exciting proposal that is going to be based on fresh product, fresh technology and most probably, an innovative distribution model. Ram has been a big, big success, a big success with best ever H1 Global and US retail sales for the brand since it was created as a standalone brand in 2009. Pricing power is at the benchmark level. And we have achieved in the US, a record average transaction price for the Ram 1500 with $49,000 per unit, which is also a tribute to the appeal and the attractiveness of these products. And I think this is a great achievement for the Ram brand. Dodge is also delivering strong H1 market share ever. It is quite clear that the Muscle Car is still a significant, highly profitable segment in the US and it will remain so in the future with our electrified strategy as it has been presented to you on the EV Day. We have a pricing power which is much better than the benchmark which means, we are the benchmark in terms of pricing power. And last but not least, the Durango has achieved the Best H1 US Retail Sales since 2005, which is also demonstrating the strength of this brand and the clear positioning of this brand. Let's move to the Upper Mainstream part of our brands related to Opel and to Vauxhall. Opel/Vauxhall have been now enjoying an improvement in their market share, both in the European 30. So Europe has been improving up to 4.4% market share. But more importantly, the market share of Opel/Vauxhall in Germany and the UK has been improving respectively to 6.1% and 6.6% market share. That means that, we are now back to a market share profitable growth. As you know, Opel/Vauxhall is highly profitable since the turnaround that was implemented in 2017 and 2018. And thanks to the new models that we are bringing the Opel Corsa, the Opel Mokka and very soon, the Opel Astra, profitable market share is now back. And we are pleased to share this with you, because it has been of course, a very demanding period over the last few years. We are now at the pricing benchmark, which is amazing. Knowing that a few years ago, four years ago, it were 8 points behind the benchmark, and now we have to catch up with the benchmark, while increasing our market share in Europe. And while growing by 50%, the overseas sales growth, which demonstrates that the strategy that has been implemented for the Opel/Vauxhall brands are now bearing fruits. And of course, this is to the merit of the Opel teams. We can also see that the Opel Corsa is now the number one in its own segment with a market share of 21.3% in Germany and 18.9% in the UK, so strong product, strong team managing the business in a very focused way, delivering very encouraging results and more to come. On the Peugeot side, the brand is now number two in Europe ahead of the usual competitors with 7.1% market share. In more than 40 countries, the brand was able to beat the H1 record of sales since 2015. We are the benchmark in terms of pricing and we see that we are now enjoying the regional lunches for the Pickup, the Landtrek Pickup, which is a pure Peugeot Pickup that is going to enter an open wide space for the brand. And we are also now on the way to launch the new Peugeot 308 by the end of this year. So, again more to come and it is fair also to say that Peugeot's range of electrification rate is now above 70%, which means, we have more than 70% of electrified models in the visual range. So again, we are moving on what we've committed, which is to be in 2025, at nearly 100% of electrified models in our brands. If I move to the Core Brands now, I would start with the Citroen to highlight the fact that Citroen has volumes and market share improvements in Europe, with no less than 4.8% market share in H1. We are now as I said, launching the Citroen Ami Cargo version for the last-mile delivery in downtown areas. And this has been very well received by the market. And I think that there is significant potential there for mobility tools in downtown areas. The pricing power is now above the benchmark. And we are preparing to launch the flagship model of Citroen, which is a quite innovative concept by the end of 2021. The brand new C5 X that you see on this photo. On the Fiat side, great results in terms of sales and marketing, with the leadership in Brazil, in Italy and in Turkey, and for the first time ever, leadership in South America for sales with a 14.8% market share in H1 2021 due to the success of the Fiat 2-Row and the Fiat Strada. So a great sales performance with strong leadership in Latin America. Pricing power is now at the benchmark level. The Fiat 500e is not the leader on the A-segment for electrified vehicles, which is also a great achievement for this very compact electrified model, electric model, in fact, and we are on our way to bring by 2023 model, B set - more B-segment products, electrified and electric B segment models to the market based on common platforms, as you may imagine. Let me move now to the LCV business. As you know well, Stellantis is a significant leader in terms of LCV business, not only in Europe, with 34.4% market share, but also in South America with 33.4% market share. So a very strong leadership that we intend to expand outside of Europe and South America. In South America, Enlarged Europe, Middle East and Africa, we have been growing our market share in H1 as much as in the US light and heavy-duty pickup area. So strong market share improvement across the Board, with highly profitable sales as you already know. We are also making sure that the electrified technology is now shared across the different regions, namely between Europe and North America to make sure that we are leveraging the scale and the technology power of Stellantis to support a better business and the more electrified business in Europe and North America. And this is exactly what we are now preparing for in the next generations. By the end of this year, in Europe, all our Van portfolio will be electrified, compact van, midsized van, larger van, the three of them will be electrified by the end of this year. But that's not enough, we will also bring by the end of this year, our either Hydrogen version of the midsized van, which is going to be a somewhere competing with the EV proposal on the same van. So we'll have a lot of insights in the comparison between the two technologies, pure EV or Hydrogen on the same van, addressing B2B needs and fleet needs, it's going to be a very good possibility for us to learn about those different pros and cons. And just would like to share with you that the Hydrogen midsized van will have a range of no less than 400 kilometers, and will be able to charge the Hydrogen and to refuel in less than three minutes. So more than 400k, less than three minutes. That's most probably a paradigm shift for this LCV business and we are happy to bring those products to the market by the end of this year. I think it's one of the strengths of Stellantis in the LCV business. Let me now move to the Premium Brands. To share with you that the three Premium Brands are on this very strong electrification journey. Alfa Romeo will be fully electrified in 2027, Lancia in '24 and DS in '24 also. So a strong electrification journey. In the Alfa Romeo brand, we are now focusing on preparing a better management of the residual values of this brand to make sure that we continuously improve our pricing power, even though we are already at the benchmark level in a few months period. We also are preparing for the future of the electrification of Lancia. As you see, we start with a huge gap in terms of pricing power, vis-a-vis the benchmark, which means that, if we do things well, we have a significant potential to improve our profitability of the Lancia sales. And I can tell you that we are preparing for a very exciting turnaround with a very exciting models that I have already seen, can tell you gorgeous cars are coming, strong potential to improve the pricing power. And as you already know, Ypsilon is still the number one in the B-segment in Italy. Stellantis is the brand that has within the Stellantis brand portfolio, the highest LEV sales mix close to 40% sales mix, which is quite outstanding, we are better than the benchmark, which means, we are now the benchmark in terms of pricing. And by the end of this year, DS will have a highly exciting showroom with a flagship model, eSedan, the DS9, with the brand new DS4 Crossback, the DS7 Crossback and the DS3 Crossback. All of these models have either pure BEV versions or and PHEV version. So fully electrified brand portfolio for DS with four exciting models in the showroom by the end of this year. So a very good opportunity to continue to grow profitably this Premium Brand. Let me now move to our unique Luxury Brand, our Maserati brand, with great news as the brand is now in the Black, which is absolutely a great news, because now it's going to give another boost to the profitable sales of this brand. We already have significant market share improvement in some key markets against last year, namely China. We are improving our business model and our residual value management in North America. And I think it's going to improve quite soon and quite significantly. We are introducing the first electrified technology on the Levante with the Mild-Hybrid, it was delivered from July. We are now bringing the MC20 to the market in September '21, after we double check that we have achieved the right level of validation and maturity for the product which we have. Now we are ready to start and launch the product. And we are preparing to launch the all-new Grecale by the end of this year, again with a very strong focus on fit and finish, on quality and robustness of the validation. So, more to come. I think that Maserati has a significant potential to grow profitably as the unique Luxury Brand of Stellantis. We have tons of ideas to make this brand even more profitable, and even more exciting, based on the iconic history of the brand. In terms of Mobility Services, what we see both on the Free 2 Move side and the Leasys side is that, the business is growing and it's growing very fast in the range of 50% to 100%. We see that both businesses are now profitable, and they are growing quite fast. We see that Free to Move is now also moving in the US with expanding car-sharing activities in additional cities in the US, we see that we are bringing more eSolutions to our customers with wallboxes, home green energy and some public charging solutions, not only on manufacturing, but also in terms of bringing those technologies to operators. On the Leasys side, is a similar situation, a very strong growth on the revenue side for the short, medium and term rental, subscriptions and car-sharing revenues. We see that we also have some very good electrification solutions which are provided, including proprietary network of around 1100 eParking locations at the 555 Leasys Mobility Stores across Europe. So, a lot of initiatives in terms of electrification, strong revenue improvement on profitable service mobility operations, which is not so often that we can see Mobility Services growing fast and at the same time, being profitable. So in a nutshell, Leasys with the strength of the leaser and Free 2 Move with the strengths of a tech company are both combining their rigidity to enhance our customers' mobility experience. That's what is now ongoing and I think it's quite promising. I would like also to bring to you an additional information based on the feedback I got from the EV Day, where some of you were saying that, you wanted to know more about the launch calendar for our electrified model. So here it is, over the next 24 months, you can expect from Stellantis no less than 11 pure BEV launches, those 11 additional pure BEV launches in the next 24 months will add to the existing 11 BEV on sale, which means that, by then, we'll have no less than 22 pure BEV on sale. I'm not even counting here the PHEVs, I'm just focusing on the BEVs. This is to say that, we are now racing, we are now executing our plans, we are now extremely focus in delivering what I have committed to you, which is a 1% electrification by 2025. We are on our way, I understand that you are very much interested by the BEVs, which is the reason why I'm focusing on the BEVs as one of the feedbacks from the EV Day. But you can also see on this slide, the PHEV proposals which are working extremely well, like for instance, the 4xe strategy on Jeep, which is bringing a lot of value and a lot of profitability to the company. So this is one of the points I wanted to share with you as a feedback from the EV Day. And now, I would like to hand over to our CFO, Richard Palmer, Rich is going to comment to you the detailed financial results. Richard, the floor is yours. Richard Palmer: Thanks, Carlos. Good day to everybody. Moving to Page 17. I'll start by just spending a second on the basis of presentation of the numbers today. As previously discussed, the merger of PSA and FCA was legally completed on Jan 16, 2021, and PSA was determined to be the accounting acquirer. Therefore, the PPA, the purchase price allocation exercise was performed as of that date on FCA's assets and liabilities, and the results of FCA are included in the results of Stellantis from Jan 17, 2021 for IFRS financial statement purposes. Only the results of PSA standalone are included in H1 2020 accounting comparatives for IFRS. So to aid comparability, today, we will show pro forma figures for both H1 '21 and H1 '20 which are presented as if the merger had occurred on Jan 1, 2020. Therefore, H1 2021 pro forma results would include the results of FCA for the full period, including the period from Jan 1 to Jan 16, 2021. And the comparative period of H1 2020 includes the results of both, PSA and FCA. So all my comments today will be respect - with respect to those pro formas. Moving to Page 18, we start with key numbers. So as mentioned by Carlos, consolidated shipments increased 44% to nearly 3.2 million vehicles, despite production losses of around 20% of planned production or 700,000 units in the first half. All regions in Maserati were up with South America up 128%, Extended Europe plus 41%, North America, plus 25%. All brands showed significant improvements, except for Dodge due to the end of production of Journey and Grand Caravan last year. Revenues were up 54% before negative FX and AOI reached EUR 8.6 billion with margins at 11.4%, a record level compared to both PSA and FCA prior performance. Industrial free cash flow was negative, in line with the expectations that we mentioned in our Q1 revenue call. And this was due to the negative working capital and provision impacts of lower production volumes achieved at the end of the half compared to the end of 2020. Due purely to the semiconductor shortages, excluding working capital provisions impact, the cash flow would have been positive EUR 4.5 billion. Industrial net financial position was EUR 11.5 billion of net cash, down from the aggregate EUR 17.8 billion at the end of 2020 due to extraordinary dividends paid as part of the merger closing of EUR 4.2 billion. EUR 1.7 billion of fair value adjustments as a result of purchase accounting, valuation of the debt and the PPA exercise, and the EUR 1.2 billion of negative H1 cash flow, offset by over EUR 200 million of proceeds from the IPO of the Aramis used car business and EUR 0.4 billion of FX effects. Industrial liquidity was over EUR 51 billion at the end of June, of which, EUR 41 billion was cash and down by EUR 6 billion for the reasons stated above, plus the expiry of a EUR 3 billion facility credit line in the period, which was offset by EUR 3.8 billion of debt issuance in first half. On Page 19, we show the rest of the P&L. H1 included EUR 1.1 billion of unusual charges, of which, EUR 0.5 billion related to inventory fair value adjustments for purchase price allocation, and nearly related to restructuring costs offset by EUR 0.2 billion of gains on resolution of tax matters in South America. Finance charges were EUR 229 million and included around EUR 150 million of gains on discontinued derivatives, positive FX impacts and mark-to-market of investments. Tax expense was EUR 1.8 billion with an effective tax rate of around 24%. The prior tax rate included DTA write-offs. Income for investments held under equity method was EUR 405 million and included EUR 338 million from the FinCo joint ventures. The year-over-year improvement was mainly due to the reduced impact of losses from China JVs. As a result, net profit in the period was EUR 5.9 billion, compared to EUR 0.8 billion net loss in H1 2020. On a full year basis, we expect finance charges to be around EUR 800 million and the effective tax rate to be around 24%. Moving to Page 20, we show the drivers of the revenue growth of 46% year-over-year, and 54% excluding negative FX impacts mainly due to the weakening of the US dollar, the Brazilian real and the Turkish lira. Volume was up nearly 1 million units resulting in a 44% increase as mentioned, which translated into a 33% increase in revenues due to the negative mix impact of higher relative growth in South America and Extended Europe compared to North America, as well as lower growth in non-new vehicle revenues. Strong net price was driven by increases in all regions, and in particular, in North America, South America, Extended Europe and Middle East and Africa, with North America representing 60% of the Group impact. Vehicle line mix was also very positive, mainly due to North America which was 70% of the Group impact - and Enlarged Europe representing 25% at a Group level. The other business lines were also positive for EUR 1.3 billion, mainly due to increases in parts and service activities across most regions. Next, we move to Page 21. We review the work to the EUR 8.6 billion adjusted operating income. In terms of volumes, as we mentioned, all regions increased due to the much reduced impact of COVID-19 interruptions and despite the negative impact of semiconductor shortages. In addition, the strong retail demand coupled with supply constraints allowed us to focus on net price and vehicle mix improvements, particularly strong in North America. In fact, North America accounted for around 60% of AOI with Enlarged Europe at 33%, while South America, Middle East Africa, China and Indonesia Pacific or and Maserati all showed significant year-over-year improvements, evidencing the future potential of these segments. On the cost side, they increased due to a resumption of more normal activity levels compared to H1 20 and raw material inflation was contained by cost reduction - initiatives in all regions. Raw material inflation in H1 was 0.7 - EUR 0.75 billion, driven particularly by North America and South America and offset by purchasing efficiencies led by Enlarged Europe and reduced compliance costs. The SG&A increase related mainly to marketing spend and non-repeat of COVID related furlough schemes in some countries. R&D increase in North America and Enlarged Europe spending normalized versus 2020. Finally, a comment on the impact of the purchase price allocation and fair value adjustments and the accounting policy adjustments to the AOI margin. At a Group level, the impact of reduced D&A, net of lower than prior levels of R&D capitalization results in a margin improvement of around 1.4 percentage points in the half. Now we'll look at the performance by region starting on Page 22. With North America, which had a record performance with AOI margin reaching 16.1%. Industry volumes were up 29% with US retail plus 34% and US fleet plus 7%. Our sales were up 17% to nearly 1.1 million units with retail up 26% and fleet down 15% as mix was optimized. Market share as a result was down 1 percentage point to 10.9% due to the - supply constraints. Shipments were up 25% with Jeep up 20% despite constrained supply on Compass, Renegade, Cherokee and Ram was up 56%. Dodge was down 23% due to the discontinued Journey and Grand Caravan. Revenues were up 42% with strong net price and mix improvements. This increase in volumes together with the substantial improvement in the revenue performance drove a six-fold increase in the adjusted operating income. The industrial cost side of the business was well contained, despite the significant increase in volumes. With raw material inflation and industrial inefficiencies due to - due largely to the semiconductor shortages, partially offset by purchasing savings and lower warranty accruals. SG&A increased was due to marketing expenses, while G&A was flat, and R&D - spending return to more normal levels. The FX impact was negative, partly offset by improved AOI in parts and service. On Page 23, we review our South America business which achieved excellent commercial results in H1 as mentioned. In an industry, it was up 40%, Stellantis sales were up 90%, with sales in Brazil doubling to 320,000 units and Argentina up 50%. Shipments were up 128% as our South America business was less impacted by semiconductor shortages than the US and Europe. Net revenues were up 125% with negative FX impacts offset by 12% of positive price, strong mix mainly in Brazil and Argentina. This positive price mix allowed the business to offset raw material and labor cost inflation and industrial costs and SG&A. As a result, margin strongly improved to 6.7% for EUR 326 million of AOI. Next, we review Enlarged Europe on Page 24. The industry in EU30 was up 29% and Stellantis achieved a share of 23.1%, an increase of 80 basis points and in number two position in the market, with sales up 34% driven by all key brands, with Peugeot, Fiat, Citroen, Opel and Vauxhall all being up over 30% and therefore, all growing their respective market shares. Shipments were up 41% with new models such as the Citroen C4, the Opel Makka and Fiat 500e supporting the increase. Revenues were also up 41% with vehicle volumes pricing and mix all positive as well as increases in parts and service and used car revenues. This strong revenue performance was supported by nearly EUR 0.5 billion of industrial efficiencies in purchasing, manufacturing and supply chain as well as reduced compliance costs more than offsetting raw material inflation. SG&A increased due to marketing expenses and the normal occurrence of short work subsidies available in H1 '20. The AOI consequently increased significantly to EUR 2.8 billion with margin at 8.8%, a very strong result for the first six months of just substantially changed region post-merger. On Page 25, we see Middle East and Africa, which closed the half with AOI margins at nearly 10% for a total of EUR 247 million. The industry was up 43% and EMEA sales were up 48% to 210,000 units led by the Peugeot brand up 55% and Fiat brand up 53%. Net revenues increased by 43% due driven by the volumes as well as pricing actions in Turkey to offset the devaluation impacts of the Turkish lira. Improved vehicle line mix was driven by more Jeep Wrangler volumes, highlighting the potential for Jeep in some parts of this region. On Page 26, we show the remaining three segments, China - sorry, two segments, China and India and Asia Pacific. Consolidated shipments were up 69%, driven by Jeep Wrangler, Jeep Compass in India and Peugeot 208, 2008 and 3008. These volumes of imported vehicles relate mainly to India and Asia Pacific, with only 10% in China since the joint venture volumes are not consolidated here. Revenues were up 57% and together with better net pricing in Japan, Korea and Australia, this drove margins to improve to 10.9% for the half. Turning to Maserati, sales were up 63% with sales up in all markets and shipments were up 112% due to the launch of refreshed versions of the - of all of the lineup. Net pricing of these new versions was also improved and offset increased marketing spend to sustain the launch of the Levante MHEV. As a result, margins were positive for the half. On Page 27, we show the industrial free cash flow for H1. As mentioned, cash flow was negative EUR 1.2 billion, due to EUR 5.7 billion of negative working capital and provisions impacts as the semiconductor shortages impacted volumes. And excluding this volume impact, the cash flow would have been positive EUR 4.5 billion. Looking at the elements of the cash flow. AOI before depreciation and amortization reached 15.3% margins in H1 or EUR 11.4 billion. CapEx spend was EUR 5.3 billion, adding also the EUR 1.4 billion of R&D expense in the operating result. The overall spend on P&E and R&D were EUR 6.7 billion for the quarter - sorry, for the half, equivalent to 8.9% of revenues. This is at the high end of our 8% to 9% target range due to the constrained volumes impacting revenues. The negative working capital and provisions was driven by around 230,000 units of lower production in May, June compared to November, December 2020. Also a reduction in dealer inventories were around 300,000 units, as well as reduced accrual levels for incentives drove the change in provisions of EUR 2.4 billion negative. Looking forward to H2 cash flow, we expect volumes of - shipment volumes to be flat to positive versus H1, particularly in Q4, and therefore to see no repeat of the balance sheet negative items we saw here in H1. With some seasonal positive impact on inventory as plants shut down for the holiday period. CapEx spend rate will be comparable to H1 as well restructuring spending, with finance charges and cash on taxes increasing by around EUR 1.4 - EUR 1.5 billion due to payment timing. As a result, we expect full year industrial free cash flow to be positive. On Page 28, we review the status of our new vehicle inventories. Inventories reduced further from March levels with dealer inventories down 189,000 units, of which, North America was two-thirds of the reduction. Dealer inventory levels are at historic lows, and we and our dealer partners are improving dealer turn times to manage the distribution more efficiently. This is also supporting pricing discipline and facilitating actions on pricing and channel mix to be more quickly transmitted into the marketplace. The region with the most significant dealer stock reduction has been North America, where day sales coverage of US retail sales are about 50 days at the end of June. Group inventory has also reduced as work continues to create a more efficient flow of vehicles to dealers and final customers. Moving to the last page of the financial section, on Page 29. Our industry outlooks by region remains substantially unchanged from our Q1 update, with the exception of North America, where we have updated the full year outlook from plus 8% to plus 10% due to strength in the US retail demand, in particular. As regards our full year adjusted operating income margin guidance, after the strong performance in H1, we are raising our guidance to around 10% for the year. This guidance now includes the impact of purchase accounting and changes in accounting policies that I mentioned earlier. This guidance also assumed no further deterioration in semiconductor supply, and no further significant COVID-related lockdowns in Europe and the United States. Now, I will hand back to Carlos. Thank you, everybody. Carlos Tavares: Well, thank you, Richard, thank you for this very focused presentation. Before we move to the Q&A, I would like to share with you some of the output that is coming from our top executive team in Stellantis. As you know, this company is seven months old, still a baby company. And we have been working with the top leadership team to clarify for our people what is the noble purpose of our company, and what should be the values of our company. This is still under evaluation with our people, but I would like to share it with you at this stage. We have come up with a very simple, noble purpose, which is to say that, powered by our diversity, we lead the way the world moves, which means that, we really bring energy, strong energy to our business and powered means talk, means energy means passion and we are passionate about what we do in the automotive industry. And we are powered by your diversity. It's the diversity of our people, while the most diversity car company in the world, we have the highest diversity, that's quite obvious when you compare ourselves to our peers, we believe that the diversity of our workforce is a strength. And we also have the diversity of our brand portfolio with 14 iconic brands. So we bring the energy, we bring the passion on our business, and we use the diversity of our people and diversity of our iconic brands to perform. And we want to lead the way, not because we want to be arrogant, but just because we believe that we have now the scale to avoid being a follower. We don't like to be a follower. We don't want to be cornered in a legacy car company, we will move fast and strong towards more a technology-driven company. And this is what we are preparing for in our long-term strategic plant we presented to you, which means that, we recognize that thanks to our scale, we cannot anymore be a follower, we need to be leading and leading what, while leading the way the world moves, the world is moving very fast, we recognize that, we recognize that we need to adapt continuously to a fast moving world, which is very Darwinian, we recognize that our mission is to bring safe, clean and affordable mobility to support freedom of mobility, because the world is moving. So we feel quite comfortable with this noble purpose, which is, powered by our diversity will lead the way the world moves. This is what our top leadership team has come up with. And this is what I have the privilege to present to you today. We have also selected four major values, which we considered as being aspirational, which means that, we want to move and to reach that level of aspirational values for our company, which means that, we recognize that we have a lot to do to reach that point and we are selected for, we are customer-centric, because we recognize that if we don't take care of our customers in a more caring way, something will go wrong at one point in time. And we have been making significant progress in terms of quality. But it's not only about product quality or even service quality, it's also about the quality of the customer journey with the different touch points that the customer has with our organization. We win together which means, we understand that we will not win in a lonely position, we need to win collectively, this is all about promoting the cross-functional work. This is all about a team-spirited work, to have the pleasure to win as a team. So the two words go together. It's about winning, because we are competitive people. It's about winning together, because we recognize that we can only win if we are working collectively in a cross--functional way. We are agile and innovative, agile, because if you are not agile, then you will disappear, because we are in a Darwinian world, innovative, because we recognize that we have a lot of additional proposals to bring to our customers in terms of innovation, starting with the technology, innovation, but not only, we should also think about the business models, innovations that we may bring to the front line of our business. So, we want to be agile and innovative. And last, but not least, we care for the future, which means, we care for the sustainability of our company, we care for the recurrent profits to support the investments that we need for the future. We care for our employees, we care for our customers, we care for the planet. So all of this is within this, we care for the future. So those are the four values that have been selected by our top leadership team. This is the noble purpose that we are now submitting to our middle management to get their feedback. And we will eventually adjust or modify what you have here. But I thought it was a good opportunity today to share this with you so that you understand what is our mindset? Where are we going and what we think we should be doing over the next few years? I would like to conclude this presentation by sharing with you, first of all, my confidence and I'm very confident that with the talented people that we have in Stellantis, this company will do great things. I would like to take this opportunity to thank each and every employee of Stellantis, they have been facing a tremendous pressure in H1, a lot of headwinds, a lot of things to be set up in terms of new organization, new business governance ways, new values, new noble purposes, a lot of challenges with semiconductors, with raw materials, with a lot of chaotic situations, geopolitical chaos, health related chaos, regulatory chaos, supply chaos. I think that we should, and I must express to my people and to all the stakeholders, my sincere appreciation and my warm thanks for what they have done for this first half of Stellantis, I think it's a great achievement coming from them, the merit goes to our employees. I would like to thank also our Board, the Stellantis' Board for their trust, and the autonomy that they have been giving us to implement all the things that we have been doing over the last six months. This is still a baby company, only six months old. And you can see the results and you can see the speed at which we are moving. I would like also to thank you warmly for your support and your interest in our company. We see that we have a very strong tailwind, which is all about the synergies, it's strong, it's helping and it's bottom-up. And that's very important for us to understand, you see their financial performance, I will not comment more, you see that on top of the financial performance, the sales and marketing performance is also quite strong, a lot of improvement in market share, which means that, we are growing our market share, which means that, when the market will be back, hopefully, the volumes will grow as a consequence of strong market share positions, in some cases, leadership positions, you see that organization, business governance ways are now done, we are executing and we are moving forward, you see that the teams are coming together quite nicely and they appreciate the diversity of our company, as it is a very strong differentiator factor to understand the world and the communities in which we are operating. And I think that's a lasting, long lasting positive factor for our company. We are now setting up the software division. And as you can see on this slide, we'll come back to you in full to tell you more about our software strategy which is coming up as a very nice and very strong differentiation factor also for this company, you see that we are growing our Mobility Services, both on the revenue side, but also on the profitability side, which means, this is also perhaps a differentiator against some other companies we are able to grow significantly and at the same time make money out of new business lines, which is a good news. And as you can see, we are full speed on the electrification strategy, we are all in and the number of BEV offers to the market is growing by the quarter. So that's what I wanted to conclude. And from here, I would like to hand over to you for your Q&A, please. Operator: Thank you. The Q&A session will now begin. And our first question comes in from the line of Philippe Houchois calling from Jefferies. Please go ahead. Philippe Houchois: Hi, yes. Good afternoon. Can you hear me now? I'm sorry about this. Yeah, the question I have is more general on Europe. We see constraints on sales in the US because of the lack of inventory. It's not that clear in Europe, and I was just trying to get your sense of what is the European recovery source we're still running was 25% below 2019 levels. If you can comment on this? And also, in that context as well, as you recently, which may cancel all your dealer contracts to renegotiate them. Just wondering what is your vision of what the future should look like for Stellantis, at least in Europe and in the US maybe it's less room to change. But if you could tell you a vision of how you see this to be evolving, more direct selling, what do you mean towards the ability of the Stellantis? Thank you. Carlos Tavares: Well, thank you. Thank you for the two questions that you have raised. First of all, we are managing the company as a global company. And therefore, we are perfectly able and doing so by the way, to arbitrate the way we break down the supply of semiconductors between the different regions. This is something that we can do. This is something that we have been doing, which means that, we can protect the best parts of our business, if need be, in the way we are managing this supply shortage in the future. So Europe is not in a standalone position. Europe is part of the global Stellantis and Europe is managed in a coordinated way with the other regions. By the way, there is a very spontaneous and proactive level of solidarity between the regional COOs, they meet and they discuss together to see what is the best possible way to maximize their business opportunities. And I'm keeping an eye on the inventories. Of course, the inventories on the OEM side are quite limited, because we are absorbing the cars as they are produced in the dealer network. But as you have seen, we have more than 700,000 cars in dealer inventory. So there is still a lot of cars to be registered by our customers in the dealer inventory. Of course, my people would like more, and rightly so. And we have to improve. And of course, the visibility that we have on the semiconductor supply is not great. I think that all my peers have been telling you this over the last few weeks, that the visibility on the supply is not very good to say it's bad. But it is also fair to say that, we do not expect it to get worse. We expect Q3 to be difficult, but we expect to see some improvement from Q4. So overall, as it was mentioned in the new guidance for 2021, we expect H2 not to be worse than H1. And if that is the case, then, we are on the right path. This is what we are seeing. We have a lot of discussions now ongoing with many suppliers. We also have a great a great team that I would like to praise here in front of you working on alternative solutions by the day. It's a 24/7 team, very strong engineers, very strong purchasing managers, working collaboratively to find out what are the alternatives that we should put on the table and validate to make sure that we avoid some of the shortages that we can foresee moving forward. So this is working quite well. Better and better, I must say and I think that we'll be able to support that moving forward. But the visibility that we have in the automotive industry on the semiconductor supply is still quite poor. I think that that's what you can take away from all the comments from the carmaker CEOs that you have been hearing from over the last few weeks. In terms of dealer contract, it is quite clear that the electrification of the automotive industry is now bringing new challenges and new opportunities. And it is fair to say that our dealers have been asking us for a while to clarify what the future will be. I think it's a fair request. And at the same time, our answer to them is, well let's discuss it and let's build it together. It may be more direct sales. It may be a new distribution model, it is up to us to co-construct what that will be and under the legal constraints in which we are operating, Europe, the best way to trigger that kind of discussion was to give the pre-notice to everybody, by putting ourselves in the legal frame that we are expected to be in, and then having a very open and constructive discussion with them. This is what is going on right now. And I can tell you that from the reports I get, the discussions are very productive and very well intended. I think that our dealers are very mature business people, they completely understand that something needs to change, that we are moving to a new world, a different world in terms of distribution. And, of course, there will be a business for each of us moving forward, because we need to take care of our customers. They are asking us to protect their freedom of mobility. This is a big lesson learned out of the lockdowns is that, the value of the freedom of mobility has been increasing sharply. By the way, this is the reason why our order book is growing by the day is that people understand that the automobile is a fantastic tool to protect your freedom of mobility. And our dealers are very mature people, they understand that something needs to be adapted to this new reality. This is exactly what we are discussing right now. So it can be direct sales, it can be different ways of retailing the products, maybe a different distribution model. This is what we are discussing with them. And so far, regardless of the brand, we see very positive feedback and very well intended contribution from our dealer associations. And I would like to take this opportunity to thank them and congratulate them for their open mind and flexible mind in this discussion, I think it's in the best interest of all of us to find the most appropriate distribution models for the future. And this legal constraint that we have, is giving us the good opportunity in the appropriate timing to have this discussion. This is the reason why we did not hesitate to give this global pre-notice to all of them to open the way for this open minded discussion. That's where we are today. At this stage, only positive things are coming up. And let's see how we can conclude this discussion in the next few weeks. Thank you. Let's go to the next question. Philippe Houchois: Thank you. Operator: The next question comes in from the line of George Galliers calling from Goldman Sachs. Please go ahead. George Galliers: Yes, thank you for taking my question. So I really wanted to focus on the cash flow. If I take the EUR 4.5 billion you did in the first half, ex-provisions and working capital as a percent of the operating income, it is around 63%. When we think about the full year cash flow, if we apply the same percentage to the implied , only a 10% margin, it would suggest something in the region of EUR 7.5 billion to EUR 8.5 billion of free cash flow. And if we then deduct the incremental EUR 1.5 billion you mentioned for financial charges and taxes, it would leave us to EUR 6 billion to EUR 7 billion of free cash flow for the full year. I know you don't have a free cash flow guide. But is it in the right ballpark? And if yes, I'd realize we'll learn more about your capital allocation policy and thinking at the CMD next year, but how should we think about the capital allocation for this year? Thank you. Carlos Tavares: Well, thank you, George and I will give the floor to Richard for a more technical answer to your question. I would make just two comments. First of all, you are an optimistic man and I'd like to discuss with optimistic people, because I like to see the future as being better tomorrow than it is today. So, welcome to the club. That's point number one. Point number two is that, in terms of capital allocation, I think you can keep in mind that, we believe that we can be highly competitive by being around 8% of turnover in terms of R&D and CapEx spending. We believe that right now we have around 30% more efficiency and effectiveness in the way we are using our capital than our peers. And we intend to keep this 30% efficiency and effectiveness premium against our peers. This is related to the way we spend our money, related to the way we manage our diversity complexity, related to the way we manage the product planning strategy of the company and we are going to continue to protect those 30% premium, because we believe it's part of our DNA and it is completely consistent with the 8% R&D and CapEx spending against turnover. And I think we can do that, while protecting the full competitiveness of the company, mid and long-term. Now to your working cap and free cash flow question, I would like to hand over to Richard. Richard Palmer: Thank you, Carlos. So in terms of your math, George, I think, you know, I think it sounds a little optimistic to me too, so obviously, I'm the pessimist of the two, but that's part of the job. So, I think we expect second half to be to be strong, obviously. And that's where we get to a positive full year cash flow. And obviously, the big unknown frankly is, how does the semiconductor profile work out through the second half. And how may that impact the balance sheet? So, I think we feel pretty good about the fact that first half to second half, semiconductors should not get worse, although obviously we need to caveat that with the lack of visibility, frankly, within the supply chain, so there were some discrete events in H1. Malaysia continues to be a problem for us and others coming into the beginning of this quarter. So, you know, it's difficult to be very precise about what second half volumes will be. So I think we're being a little bit prudent on our cash flow saying is going to be positive, it could be better than positive. But I think for now, we'll stick with that. As regard to capital allocation, I'd go with Carlos, I think, you know, part of the strategic planning exercise that we need to come back to you all with is, how we think about capital allocation. Clearly, we have a strong balance sheet, we have EUR 50 billion liquidity, we have lots of places to spend money on in terms of the technology challenges that are coming, as we're all aware of, I'm sure we will have a distribution policy for our shareholders as regards dividends, which will be in line with sort of prior practice of the two companies and with the industry, that sort of standards. So you know, I'm sure we'll have enough capital for that I believe the company will generate substantial cash flow, once the volume impact of semiconductors is no longer with us. And we stabilize that number. So you know, pretty confident about the cash flow going forward. And the dividend policy, but I don't to preempt discussions around the strategic plan that we need to have with the Board and then then with yourselves. Carlos Tavares: Is there a question? Operator: The next question comes in from the line of Thomas Besson calling from Kepler Cheuvreux. Please go ahead. Thomas Besson: Thank you very much. Thomas Besson, Kepler Cheuvreux. I'd like to follow-up on that line you see that possible? You managed to reach record H1 margins for the first months of your baby company. A lot of companies appear to be reaching big margins already in H1. I'm sure you don't want that to happen. So I'd like to check whether there are any reasons for us to believe that H2 should be lower than H1 with synergies probably rising, and a very strong pricing environment. And am I right to believe as well that your intention otherwise is to have the profile of Stellantis in terms of margins looking a bit like the one of Peugeot from your arrival to the merger? Thank you. Carlos Tavares: Well, as you pointed out, Thomas, the big gorilla in the room is the semiconductor supply. That's the big gorilla. I told you that we are starting very strong with synergies. So that must be a tailwind. The problem that we all have is that, the measurement of the magnitude of the headwind coming from the semiconductor is not great. That's why we need to keep some kind of attention to this topic. We are going to continue to be very disciplined in the way we run our operations discipline, in terms of inventory discipline, in terms of pricing power discipline, in terms of distribution costs, we are going to continue to put strong pressure on variable costs as much as on the - on fixed costs. So we believe that there are things that we can do to continue to face headwinds. Now, the speed at which all of the things will materialize, we'll see. This is now a bigger company and with strong regions, strong engines moving forward. We need to do all of this and at the same time, give the company the possibility to breathe and enjoy the autonomy that each region needs to have to enhance his own business. So that's what we are now going to do. The tailwind is clearly the synergy amount which is starting to look quite good, but it's all about execution, I'm only reporting to you what has been executed, not the forecast and not what is planned. Just the executed part, there is still win there, the measurement of the headwind in raw material cost inflation and in semiconductor or any additional lockdown is still very uncertain. As you may see, you see that in terms of lockdowns, there is a lot of hesitation going around in the world because of the Delta variant. So if I was able to predict the future with possibly with you doing something else, but I'm not able to predict the future. So the only thing I can do, and this is exactly what we are doing with Richard is, putting as many tailwinds as we can in motion to make sure that statistically with the tailwinds that we put in motion, we can overcome the headwinds. That's where we are right now. But it will be also possibly excessively prudent to consider that the semiconductor would be worse in H2 than H1. So we have made a decision and I have made a decision to consider that the semiconductor supply will not be worse in H2. And the reason why I'm saying this, because we have a great engineering team looking for alternative solutions as the risks are appearing and before sometimes they even materialize, we already have an alternative solution to go around this kind of hurdle. But it's very tough. And you see, I would like here to convey my sincere and warm appreciation to my people, the employees of Stellantis are really, really working more than hard. And you see, it's very interesting to notice and I will keep that for later that nobody in the current environment being in Europe or in the United States, nobody is taking care of the pressure and the stress that is imposed on the automotive industry. It's quite surprising. We have 14 million people work in the automotive industry in Europe. And nobody is caring about the stress and the pressure that is put on all of those great people that are trying to bring safe, clean and affordable mobility solutions to our citizens. And the pressure is growing by the day with the new objectives that we are expected to meet. So this is also part of the things that we should be thinking, stepping back a little bit and thinking that we have 14 million people work in the automotive industry in Europe, which possibly is the same number around the same number in North America. A significant number in Latin America, and all of this pressure is being put on these people with no consideration for the way they would feel and they would support and resist to this pressure. And I think that we also need to think about that, we should do that. And of course, it is also part of my role to make sure that we accommodate to this kind of situation and that we protect our employees and protect our people, and the cohesiveness of our company. So to answer your question, we will put in motion as many tailwinds as we can. And we have a few, expecting that things will not get worse on the semiconductor supply in H2. That's where we are today, Thomas and sorry, I cannot give you more. Thomas Besson: Thank you very much. Operator: The next question comes in from the line of Anna Gross calling from The Financial Times. Please go ahead. Anna Gross: Hi, there. I hope you can hear me. Thank you, Carlos and thank you, Richard. I wanted to ask a question that kind of follows on from Thomas's. How Stellantis faced the chip shortage by prioritizing some of its more profitable range of cars and for the chip supply that it does have as
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Stellantis Started With Underweight at Wells Fargo

Wells Fargo analysts initiated coverage on Stellantis (NYSE:STLA) with an Underweight rating and a price target of €18. The analysts at Wells Fargo expressed concerns in their note about the automotive industry's structural challenges, which they believe are being underestimated by the market.

The report identifies several key factors that could negatively impact the industry in the coming years. These include anticipated price deterioration due to excess capacity in North America and Europe, and changing product mix as Battery Electric Vehicles (BEVs) ramp up to meet regulatory targets. Additionally, they foresee potential headwinds from a decline in high-profit full-size pickups, which could be influenced by weakening trends in housing construction.

Despite these concerns, Stellantis, under CEO Tavares, has shown remarkable performance. The company's adjusted EBIT (Earnings Before Interest and Taxes) in 2022 exceeded €23 billion, a significant increase compared to the combined earnings of its four predecessor companies, which amounted to less than €1 billion in 2002. This success is attributed to Stellantis' stringent cost management policies and platform consolidation.

However, Wells Fargo analysts caution that the expected industry challenges are likely to substantially impact Stellantis' profitability in the near term. These challenges include not only the aforementioned price and mix headwinds but also broader industry shifts, such as the increasing focus on BEVs and the potential decline in pickup truck demand.

Stellantis Started With an Overweight Rating at Barclays

Barclays started its coverage on Stellantis (NYSE:STLA), setting an Overweight rating and a one-year target price of EUR 22.50.

While Stellantis stands out among European and U.S. Original Equipment Manufacturers (OEMs) regarding profitability, cash generation, dividends, and capital usage, Barclays sees its position as comparatively subdued due to a general disinterest in the European Automotive sector.

Anticipating changes in the sector, Barclays forecasts a margin shift for Stellantis, declining from about 13% to close to 11%. Such an adjustment encompasses the general leveling off of prices across the industry and Stellantis-specific issues, including dilution from Battery Electric Vehicles (BEV) and heightened depreciation and amortization costs.

Barclays highlights that even though Stellantis currently hovers around its peak trading levels, there are ongoing concerns, including uncertainties related to the United Auto Workers (UAW) strike and potential challenges in achieving long-term DF30 volume and market share targets. Nevertheless, Barclays remains optimistic. Even with their deliberately cautious predictions, their estimates are still roughly 10% higher than the general consensus, showcasing a strong earnings outlook.