Stellantis NV lowered its annual forecasts on Monday, citing increasing costs related to restructuring its US business and intensifying competition from Chinese electric vehicle (EV) makers, triggering a more than 14% fall in its share price during early trading hours.
The automaker- one of the world’s largest, known for brands such as Chrysler, Dodge, Jeep, Fiat, and Peugeot, announced on Monday that it expects to burn through between €5 billion and €10 billion in cash this year, marking a significant shift from its previous forecast of positive free cash flow.
It warned of lower-than-expected sales “across most regions” in the second half of the year. It now pencils in an adjusted operating income (AOI) margin between 5.5% to 7.0% for the full-year 2024 period, down from a “double digit” outlook.
This announcement follows similar moves by other major automakers, including BMW, Mercedes, and Volkswagen, which have all issued profit warnings recently due to weakening market conditions.
Aston Martin, the British luxury carmaker, also lowered its full-year profit outlook on Monday, pointing to supply chain disruptions and softness in the Chinese market.
Worsening industry dynamics and competition from China
The company now forecasts an adjusted operating profit margin of 5.5% to 7.0% for 2024, down from its earlier projection of a double-digit margin.
The decision to accelerate inventory normalization in the United States has been a key factor in this revision.
In response, Stellantis plans to cut shipments to North America by over 200,000 units year-on-year in the second half of 2024, which is double its previous guidance.
Additionally, the automaker will offer greater incentives on older models and invest in improving productivity.
The company has set a target of reducing dealer inventory to no more than 330,000 units by the end of 2024. It said in its forecast:
Competitive dynamics have intensified due to both rising industry supply and increased Chinese competition.
The automaker faces significant headwinds, especially in the EV sector, where Chinese manufacturers have been gaining ground with more affordable offerings.
The European Union is also finalizing plans to impose tariffs on Chinese electric vehicles, a move that could affect the global automotive landscape.
US at centre of Stellantis’ woes
Chrysler, once a high-selling brand, has lost its relevance, with sales plummeting in recent years.
Alfa Romeo, which had ambitions to compete with BMW, has fallen far behind in the luxury car segment. Maserati, another premium brand, has struggled to keep pace with competitors like Ferrari and Porsche.
In the mass-market segment, Stellantis’s brands such as Citroen and Lancia have also been losing market share over the years.
These struggles have been reflected in the company’s recent delivery numbers, with Q1 shipments for 2024 down by 10% year-on-year.
Market share of Stellantis brands in the United States had fallen to 8.6% as of the end of June from 10.4% a year earlier, Cox Automotive said.
The company’s inventory build-up has resulted in unsold cars sitting in dealer lots, prompting harsh criticism from dealerships.
Kevin Farrish, the chairman of the Stellantis National Dealer Council in a letter to Stellantis chief executive Carlos Tavares this month, said,
The reckless short-term decision-making to secure record profits in 2023 has had devastating, yet entirely predictable, consequences in the US market. Those consequences include the rapid degradation of our iconic American brands. You created this problem.
The company has been grappling with rising costs associated with its efforts to overhaul its American business.
Earlier this year, Stellantis announced layoffs of around 2,450 workers at its Detroit-area assembly plant as it ends production of the Ram 1500 Classic truck.
The United Auto Workers union have asked workers at Stellantis to authorise a strike as it accused the French-Italian automaker of failing to honour its contract commitments, UAW President Shawn Fain said in a letter to the union’s US chapters.
Stellantis has also faced legal issues, with shareholders in the US suing the company earlier this year over allegations that it misled investors by concealing rising inventories and other operational problems.
Stellantis’s challenges are not limited to the US market.
The company has warned of lower-than-expected sales across most regions in the second half of 2024, exacerbating its financial woes.
European rivals also feeling the pressure
Stellantis’s woes mirror those of its European competitors. Just days before Stellantis slashed its forecasts, Volkswagen announced that it was lowering its own annual outlook for the second time in three months.
The German automaker now expects an operating return on sales of 5.6% in 2024, down from its previous projection of 6.5% to 7.0%.
Volkswagen attributed its revised forecast to slower-than-expected developments in its passenger car and commercial vehicle brands, as well as a “deterioration of the macroeconomic environment.”
BMW and Mercedes have also revised their annual outlooks, reflecting the broader challenges facing the automotive industry.
Supply chain disruptions, inflation, and rising costs have compounded the difficulties, while demand in key markets like China has weakened.
Aston Martin, which issued its own profit warning on Monday, cited similar factors, including supply chain issues and weaker demand in China.
The luxury carmaker’s outlook underscores the fact that even high-end brands are not immune to the current industry pressures.
What’s next for Stellantis?
Stellantis’s future hinges on its ability to navigate the evolving global automotive market.
The company must address its inventory issues in North America, improve productivity, and counter the growing threat from Chinese competitors in the EV market.
With its US operations accounting for more than half of its profits in the first six months of 2024, the automaker cannot afford to ignore its challenges in the region.
Analysts have noted that Stellantis’s problems are deep-rooted, and significant restructuring will be necessary to reverse its current trajectory.
As the automotive industry continues to face global disruptions and heightened competition, Stellantis will need to adapt quickly to remain competitive.
The post Stellantis plunges 14% after lowering forecast: what’s driving the struggles? appeared first on Invezz
