The company, which boasts a portfolio of 14 brands, 2 mobility arms (Free2Move and Leasys) and a global presence, announced that its 2024 profitability is expected to be significantly lower than previously anticipated. This news triggered a sharp sell-off, with Stellantis shares plummeting over 14% and wiping out over 41% of their value this year.
The company cited escalating expenses outpacing operating cash flow as a key factor in the revised outlook. This announcement comes as the auto industry grapples with a confluence of challenges, including inflation, supply chain disruptions, and intensified competition, particularly from Chinese manufacturers. Despite its ambitious electrification strategy and commitment to cutting-edge technology, Stellantis, like many of its peers, is facing a turbulent road ahead. Let’s take a close look.
Who Is Stellantis?
Stellantis N.V. stands as a global automotive powerhouse, born from the merger of Fiat Chrysler Automobiles and the PSA Group in 2021, which brought together a remarkable collection of 14 iconic brands. Beyond its impressive brand portfolio, Stellantis is driven by a commitment to sustainable and accessible mobility for all. This commitment is embodied in its “Dare Forward 2030” strategic plan, a bold roadmap that sets the stage for the company to achieve carbon net zero status by 2038 through 4 key pillars:
Electrification at Scale: Stellantis is aggressively pursuing the electrification of its vehicle lineup, with a goal of 100% of its European sales and 50% of its U.S. sales consisting of battery electric vehicles (BEVs) by the end of the decade. This involves substantial investments in BEV development and production, as well as the establishment of a robust charging infrastructure.
Hydrogen Fuel Cell Exploration: Recognizing the potential of hydrogen as a clean energy source, Stellantis is actively exploring hydrogen fuel cell technology as a zero-emission propulsion solution. This is particularly relevant for its light commercial vehicle (LCV) segment, where range and payload capacity are critical considerations.
Software-Defined Vehicles: Stellantis understands that the future of mobility lies in software, that’s why the company is investing heavily in intelligent vehicle software strategies, aiming to revolutionise how vehicles are designed, engineered, and experienced by customers. This includes advancements in connectivity, user interfaces, and personalised driving experiences.
Autonomous Driving Advancements: Stellantis is committed to developing advanced driver-assistance systems (ADAS) and autonomous driving technologies. While Level 2 autonomous driving features are already available in many of its vehicles, the company continues to research and develop higher levels of autonomy to enhance safety and convenience.
Why Is Stellantis Hitting the Brakes on Profit Expectations?
Stellantis’s decision to downgrade its 2024 market outlook and financial guidance stems from a combination of internal and external factors that are putting pressure on the company’s activity and profitability.
Here’s a breakdown of the key reasons:
1. North American Performance Issues:
Inventory Build-Up: Stellantis is facing a significant build-up of unsold vehicles in North America, particularly in the U.S. To address this, the company is accelerating its efforts to reduce dealer inventory levels, which involves:
Production Cuts: Stellantis plans to significantly accelerate the reduction in its shipments to North America in the second half of 2024, cutting more than 200,000 vehicles compared to the same period last year (compared to a target decline of 100,000 vehicles previously).
Increased Incentives: The company will offer greater incentives to entice buyers for its 2024 and older models, which could impact profit margins.
Productivity Improvements: Stellantis is implementing measures to improve productivity and reduce costs, including potential adjustments to production capacity.
2. Deteriorating Global Industry Dynamics:
Lower Market Forecast: The overall outlook for the global automotive market in 2024 has weakened compared to earlier projections. This implies lower demand for vehicles, potentially impacting Stellantis’s sales volumes.
Intensified Competition: The automotive industry is becoming increasingly competitive, with rising supply from established players and a surge in competition from Chinese automakers, which puts pressure on pricing and market share.
Stellantis has issued a stark warning to investors and traders: brace for a bumpier ride in 2024. The company has significantly lowered its profit expectations and now anticipates burning through cash instead of generating it.
Specifically, Stellantis has slashed its adjusted operating income (AOI) margin forecast to a range of 5.5% to 7.0%, a significant drop from the previously anticipated “double-digit” figure. Adding to the concerns, the company now projects that it will have negative industrial free cash flow, in the range of -€5 billion to -€10 billion, a complete reversal from the prior expectation of positive cash flow.
Stellantis Technical Snapshot: Monday 30th of September
Weekly Stellantis Chart – Source: ActivTrader
Stellantis shares, traded on major exchanges like the New York Stock Exchange (NYSE: STLA) and Euronext (Milan: STLAM, Paris: STLAP), have taken a significant hit, plummeting more than 40% in 2024. They also reached a peak of €27.345 in March 2024. The sharp decline in Stellantis’s share price underscores the growing uncertainty surrounding the company’s future performance. Investors and traders are clearly concerned with the company’s ability to overcome the mentioned challenges and deliver on its ambitious growth plans.
It’s Not Just Stellantis: Profit Pressures Mount Across the Auto Sector
German automakers, including giants like Volkswagen, Mercedes-Benz, and BMW, are facing a harsh reality check, forcing them to revise their profit forecasts downwards. This wave of profit warnings signals a growing sense of unease within the industry.
The Chinese economy, a crucial market for German automakers, is experiencing a slowdown, dampening consumer spending and impacting car sales. These companies have traditionally relied heavily on China. Domestic Chinese automakers are becoming increasingly competitive, offering attractive vehicles at competitive prices, which is putting pressure on German brands that are losing market share to local rivals. Additionally, fierce price war has erupted in the electric vehicle (EV) market in China, further squeezing margins and making it harder for German automakers to compete.
Beyond China, the global automotive industry is facing a challenging environment characterised by rising inflation, supply chain disruptions, and increased competition. The transition to electric vehicles is also adding complexity and cost pressures for traditional automakers. They are investing heavily in EV development and production, but the returns on these investments are not yet guaranteed.
Investor confidence in German automakers has waned significantly in 2024, as evidenced by declining share prices. BMW has experienced the steepest decline, with its stock down more than 22% since the beginning of the year. Volkswagen has also seen a substantial drop of over 15%, while Mercedes-Benz has fared relatively better, with a decline of just over 8%.
Daily Charts of BMW and Volkswagen – Source: ActivTrader
Aston Martin, the iconic British luxury carmaker, is facing a turbulent period, marked by a series of challenges that have significantly impacted its performance and investor confidence, pushing it to also lower its guidance for 2024.
As a purveyor of high-end vehicles, Aston Martin is particularly vulnerable to economic fluctuations in key markets like China. The recent slowdown in the Chinese economy has led to a decline in luxury car sales, directly impacting Aston Martin’s performance in the Asia-Pacific region, which accounts for a significant portion of its sales.
The company has also been hit by supply chain issues, with problems at several suppliers hindering its ability to manufacture new models, which has led to production delays and a reduction in the number of vehicles the company can deliver.
Due to these challenges, Aston Martin has been forced to scale back its production targets. The company now expects to produce approximately 1,000 fewer cars than initially planned for the year. Therefore, the combination of lower production and weaker demand has led to a downward revision of the company’s sales forecast. Aston Martin now anticipates that sales will be lower than in 2023, and earnings will fall short of market expectations.
These challenges have taken a toll on Aston Martin’s share price, which has plummeted by more than 46% since the beginning of 2024 (including 24.51% loss yesterday).
Disclaimer
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 66% and 83% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
ActivTrades Corp is authorised and regulated by The Securities Commission of the Bahamas. ActivTrades Corp is an international business company registered in the Commonwealth of the Bahamas, registration number 199667 B.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.
