Stellantis, the world’s fourth-largest automaker, is taking decisive steps to address weak margins and high inventory at its U.S. operations. CEO Carlos Tavares stated that the company will not hesitate to shut down underperforming brands in its portfolio if they fail to make money. This represents a shift in Tavares’ previous stance of supporting all 14 brands, including Maserati, Fiat, Peugeot, and Jeep, after the merger of Fiat Chrysler and PSA. Tavares made these comments following the release of worse-than-expected first-half results that caused Stellantis’ shares to plummet by 10%.
Although the company does not disclose specific figures for each brand, Maserati reported an 82 million euro operating loss in the first half. Analysts suggest that Maserati could potentially be sold off, while other brands like Lancia and DS may be at risk of being scrapped due to their minimal contribution to the group’s overall sales. Stellantis’ shares have been hit hard, with a 22% loss so far this year, making them the worst-performing among major European automakers.
Reviving margins and sales, as well as reducing inventory in the United States, is a pressing challenge for Tavares. Stellantis plans to launch 20 new models this year, hoping to boost profitability. However, recent poor results from global carmakers have raised concerns about a weakening sales outlook, particularly in the U.S. market. Additionally, the transition to electric vehicles and growing competition from cheaper Chinese rivals pose additional challenges.
Stellantis CFO Natalie Knight acknowledged the operational challenges in North America, stating that the region requires the most work. The company is taking decisive actions, including reducing production and prices, to address these challenges. However, analysts at Citi remain skeptical, predicting that these issues will persist until Stellantis resolves its inventory overhang, which would put pressure on full-year margins.
Stellantis reported a 40% decline in adjusted operating income (EBIT) to 8.463 billion euros in the first half of the year, falling short of analysts’ expectations. The company’s margin on adjusted EBIT also fell below 10%, below its target of achieving a double-digit margin for the full year. This raises concerns about Stellantis’ cost efficiency reputation.
Tavares acknowledged that the job is done in Europe but emphasized the need to focus on improving performance and cutting inventory in the United States. The high-margin RAM pickup trucks and Jeeps have been driving profits for Stellantis, but the weak margin revealed in the recent results calls into question the company’s cost efficiency.
In conclusion, Stellantis is facing operational challenges in the United States, with weak margins and high inventory. The company is willing to shut down underperforming brands if they do not generate profits. Reviving margins and sales in the U.S., along with addressing the transition to electric vehicles and competition from Chinese rivals, are key priorities. Stellantis aims to resolve these challenges by reducing production and prices in the region. However, analysts remain skeptical, anticipating continued issues until the company resolves its inventory overhang. The recent decline in adjusted operating income and margin raises concerns about Stellantis’ cost efficiency reputation. Despite these challenges, Stellantis is determined to improve performance in the U.S. market and achieve its profitability targets.