(News Bulletin 247) – The German bank lowered its advice on the car manufacturer from “buy” to “hold” on Monday, fearing that the headwinds would last another two years.

To say that Stellantis has disappointed the market this earnings season is to understate the matter. The automaker formed by the merger of Peugeot SA and Fiat Chrysler in January 2021 has completely missed expectations, with results plummeting.

The group burned through cash in the first six months of the year, halving its profits, while its margins collapsed. The adjusted operating margin rate fell to 10% from 14.4% a year earlier.

Carlos Tavares, CEO of Stellantis, also acknowledged this in a statement: “the company’s results in the first half of 2024 are not up to our expectations.” Bernstein even spoke of a disappointment that sends the company into “uncharted territory.”

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A compromised execution

Since taking over at PSA in 2014, Carlos Tavares has built a reputation for unprecedented operational excellence, with results that are increasingly dazzling. To the point that Stellantis has generated record margins, excluding luxury manufacturers such as Ferrari.

But this previously immaculate execution is now being put to the test, Deutsche Bank points out.

The German bank lowered its recommendation on the carmaker on Monday, going from “buy” to “hold”, while adjusting its target to 23 euros against 35 euros previously.

This weighs somewhat on the price of Stellantis, whose shares fell 2.4% at around 2:45 p.m., registering the second biggest drop in the CAC 40.

Not such a good operating margin

Deutsche Bank notes that on paper, the 10% margin in the first half suggests that Stellantis’ ability to leverage its cost controls is still strong. But the German bank estimates that the company made €1.8 billion in accounting adjustments in the first half.

By reprocessing these effects, it recalculates an operating margin of around 7.8%, “i.e. less than Renault and probably as much as Volkswagen (which will publish its accounts on August 1, Editor’s note)”, the establishment points out.

“We fear that this is just the beginning, as most of the problems are only just beginning to emerge,” Deutsche Bank warns.

The company is facing high inventories in North America. Carlos Tavares acknowledged to reporters that while the work had been done in Europe, it was still necessary to address the issue in this key region for Stellantis. According to Deutsche Bank, this level of inventories still represents about 90 days of sales in this region, which weighs on cash generation. The German bank expects substantial price cuts from the group to lower these inventories.

In addition, the institution considers that Stellantis’ pricing may have been “exaggerated” in the United States compared to its competitors, with an average selling price 8% higher in 2023 while it was 3% lower in 2019.

A “risky” profitability objective

Outside the United States, Stellantis risks suffering in Europe from the entry of low-cost Chinese groups, Deutsche Bank points out.

Stellantis is banking on its new vehicles to turn things around in the second half of the year, with no fewer than 20 new models coming to market in total in 2024. But Deutsche Bank points out that such a product offensive takes time to generate results and that the group’s product portfolio “is not as attractive as that of its peers”, who are also pushing their new models.

“With the first cracks observable, we continue to expect further headwinds (on Stellantis, editor’s note) over the next two years,” Deutsche Bank said.

Stellantis has confirmed that it wants to achieve a double-digit adjusted operating margin this year. Deutsche Bank considers this objective to be currently “at risk”, fearing that this margin will not exceed 10% in the second half. This therefore leads it to remain on the sidelines on the stock.

Buying the stock, Stifel last week judged that Stellantis’ confirmation of the target of a double-digit margin in 2024 was “bold” and risked turning out to be a little low.