(News Bulletin 247) – The group resulting from the merger between Peugeot SA and Fiat Chrysler announced on Monday that it was counting on a current operating margin of between 5.5% and 7% in 2024 and anticipated an industrial cash disbursement of between 5 billion and 10 billion euros.

The 2024 financial year may well remain as an “annus horribilis” for Stellantis. The car manufacturer resulting from the merger between Fiat Chrysler Automobiles and Peugeot SA has lost a large part of its credit with the market in recent months. The fault in particular is the half-year results, published in July, in free fall. The company is facing significant difficulties in its most important market, North America, where Stellantis is struggling to reduce its stocks.

A sign of the seriousness of the situation, the general director, Carlos Tavares, cut short his vacation at the end of August to go to the North American headquarters to resolve these difficulties.

The task turns out to be Herculean. To straighten out this situation and reduce its American stocks, Stellantis has decided to implement “corrective actions” which will further burden its accounts in the second half of 2024.

As a result, the Franco-Italian-American company was forced to issue a heavy profit warning this Monday.

On the Paris Stock Exchange, the stock is struggling to cope with the shock. Stellantis shares fell 14% to 12.5 euros, around 10:10 a.m. this Monday.

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A margin well below 10%

For the 2024 financial year, the group led by Carlos Tavares announced that it was now counting on a current operating margin of between 5.5% and 7%, whereas it previously anticipated a rate at least equal to 10%.

In addition, the company indicated that it expects negative industrial free cash flow ranging from -5 billion to -10 billion euros whereas it previously expected to generate positive cash flow.

This lowering of the outlook is therefore largely due to the measures taken to sell off American stocks. Stellantis announced its desire to reduce its inventories in the United States to 330,000 units at dealers by the end of 2024, an objective that the group previously expected to achieve at the end of the first quarter of 2025.

“The actions include a decline in network sales in North America of more than 200,000 vehicles in the second half of 2024 (compared to 100,000 according to previous forecasts) compared to the same period of the previous year, an increase in promotions on vehicles from model years 2024 and earlier, and productivity improvement initiatives that encompass both cost and capacity adjustments,” Stellantis said.

The impact of these “corrective measures” explains two-thirds of the lowering of the margin objective. The rest is due to “the deterioration of the automotive context”, with a 2024 market forecast down compared to the start of the year, “even though competition has intensified due to the increase in supply and increased Chinese competition,” continues Stellantis. Sales for the second half will thus be lower than expectations “in most regions” warned the company.

Oddo BHF throws in the towel

As for the lowering of the cash flow forecast, it is due to the lower outlook for current operating margin as well as a jump in working capital requirements in the second part of 2024.

“The company will continue to leverage and expand its competitive differentiators and believes that the turnaround actions implemented will enable stronger operational and financial performance in 2025 and beyond.”

This warning led Oddo BHF to throw in the towel on Monday. The broker has revised its advice downwards from “outperform” to “neutral”, with a price target reduced to 12 euros from 22 euros.

“Time is necessary to reestablish credibility after an alert of such magnitude,” judges Oddo BHF. The broker judges that the magnitude of this warning causes “a shock” and questions the visibility of the management of the company’s activity as well as its credibility.

Having lost “faith/confidence”, Oddo BHF considers that this warning “raises too many questions about the governance at the head of the group for a turnaround in the situation to occur quickly and confirms that the conflictual approach adopted with all stakeholders (employees, dealers, suppliers, governments and now even investors) was not the right one.