Stellantis NV lowered their annual forecasts Monday. They cited increasing costs associated with restructuring their US business, and the intensifying competition by Chinese electric car (EV) manufacturers. This triggered a fall of more than 14% in its stock price at early trading hours.
This is a major change from the previous projection of generating a positive cash flow.
The company warned that sales would be lower than expected “in most regions” during the second half. The company now expects an adjusted operating profit (AOI), margin of between 5.5% and 7.0%, for the entire 2024 year period. This is down from its previous “double-digit” forecast.
The announcement is similar to those made by BMW, Mercedes and Volkswagen who have recently issued warnings about the market.
Aston Martin, British luxury automaker, cut its profit forecast for the full year on Monday. It cited supply chain interruptions and a softening of the Chinese market.
China’s increasing competition and industry dynamics
It is now expected that the company will have a margin adjusted for operating profits of between 5.5% and 7.0% in 2024. This was down from earlier estimates of double-digit margins.
This revision was influenced by the decision of the United States to speed up inventory normalization.
Stellantis has responded by announcing that it will reduce shipments in North America from 400,000 units per year to over 200,000 unit annually during the second half 2024. This is more than double their previous forecast.
The automaker also plans to offer higher incentives for older models, and will invest in increasing productivity.
By the end of 2020, it has set an inventory reduction target for dealers of no more than 330,00 units. In its forecast, it said:
The competitive dynamics has intensified as a result of both the increasing industry supply and Chinese competition.
Automakers face significant challenges, particularly in the EV market, where Chinese companies have gained ground by offering more affordable products.
A move by the European Union to introduce tariffs against Chinese electric cars could have a global impact on the automotive industry.
US is at the heart of Stellantis’ woes
Stellantis faces a number of challenges in its strategic planning, especially the US where some of its most important brands have underperformed.
Chrysler’s sales have plummeted in the last few years, despite it once being a popular brand.
Alfa Romeo has been unable to keep up with the competition in this segment. Maserati is another luxury brand that has been struggling to compete with Ferrari and Porsche.
Stellantis has also seen its brands, such as Citroen Lancia and Lancia, lose market share in the mass-market segment over time.
The company’s latest delivery figures reflect these struggles, as Q1 2024 shipments are down 10% on the previous year.
Cox Automotive reported that the market share for Stellantis in the United States fell to 8.6% at the end of last June, from 10.4% one year ago.
Dealers have been harshly criticized for the company’s stock buildup, which has led to unsold vehicles sitting on dealer lots.
Kevin Farrish is the Chairman of Stellantis National Dealer Council. In a recent letter addressed to Carlos Tavares, Stellantis Chief Executive, he said:
In the US, reckless, short-term decisions made to ensure record profits by 2023 have had disastrous, but predictable consequences. These consequences include a rapid degeneration of iconic American brands. This problem is your fault.
Costs associated with the company’s efforts to revamp its American operations have been rising.
Stellantis laid off around 2,450 employees at its assembly plant in the Detroit area earlier this year as it ended production of Ram 1500 Classic trucks.
In a letter sent to US union chapters, UAW president Shawn Fain stated that the United Auto Workers had asked Stellantis workers to authorize a strike because the French-Italian carmaker failed to honor its contractual commitments.
Stellantis also has legal problems. Shareholders in the US sued the company this year, alleging that the company misled investors when it concealed rising inventories.
The challenges facing Stellantis are not confined to the US Market.
In the second half 2024, sales will be lower than expected in most of its regions. This is likely to worsen financial problems.
European competitors also feel the pressure
Stellantis is in the same boat as its European rivals. Volkswagen’s annual forecast was cut for the second consecutive time, just days before Stellantis announced its reduction.
German carmaker expects a return on sales operating of only 5.6% by 2024, down significantly from the previous forecast of 6 to 7 percent.
Volkswagen’s revised forecast was attributed to slower than expected developments for its commercial and passenger vehicle brands as well as “a deterioration in the macroeconomic climate.”
BMW and Mercedes also updated their outlooks for the year, based on the challenges that the industry faces.
The supply chain problems, rising prices, inflation and cost increases have made things worse, while the demand on key markets such as China has been weakened.
Aston Martin issued its profit warning Monday and cited the same factors. These included supply chain problems, as well as a weaker Chinese demand.
Even high-end car brands cannot escape the pressures of the industry.
What is next for Stellantis?
Stellantis’ future depends on its ability navigate a rapidly changing global automotive market.
It is important that the company improves its productivity and combats the threat of Chinese competition in the EV industry.
The automaker can’t ignore the challenges it faces in this region, as its US operations will account for over half its profit in the first half of 2024.
Stellantis has a number of deep-rooted problems, which will require reorganization to change its trajectory.
Stellantis must adapt rapidly to stay competitive as the global automotive industry faces increased competition and disruptions.
What’s behind the Stellantis drop of 14%? This post may change as new information becomes available
