Stellantis/Carlos Tavares: profiting from higher prices and a richer mix
The auto group now needs to show investors it can succeed in China and catch its rivals on electrification
Stellantis kept the pedal to the metal in its first year. Net profits nearly tripled at the group forged last January from Peugeot-maker PSA and Fiat Chrysler. Faster-than-expected delivery of cost savings testified to the execution skills of highly rated boss Carlos Tavares.
The world’s fourth-biggest carmaker now needs to show it can catch up with rivals on electrification and successfully navigate the post-pandemic terrain.
The share price jumped by 6 per cent on Wednesday, pushing gains since January 2021 up to a quarter, much in line with the Stoxx Euro autos index. Yet its forward price/earnings multiple of about 5 times is more than 30 per cent lower than rivals like VW and GM, using Jefferies estimates.
To narrow that gap, the 14-brand Franco-Italian-American group needs to show its boast of being “powered by diversity’‘ is an advantage not a drag. It must also convince investors that it can succeed in two areas where FCA and PSA were weak: China and electrification. Stellantis’s first all-electric pick-up truck, the Ram 1500, will arrive in 2024. That puts it a year behind GM and two years behind Ford. The hope is that it can learn from its rivals and avoid costly mistakes.
Stellantis should also show it can sustain double-digit operating margins, even when the pandemic supply shortages ease. Its 2021-adjusted operating margin was 11.8 per cent, nearly a fifth above target, as it prioritised high margin models in response to the chip crisis. Supply constraints will continue in 2022.
As the chip shortage unwinds, so will the mix-induced boost to profitability. The outcome also depends on capacity in Europe. Bosses, including Tavares, have warned of potentially heavy job losses, given the costs of developing new technology. Moreover, they want to tackle the European industry’s chronic oversupply.
Carmakers like Stellantis must try to retain some of the pandemic era’s pricing gains, so investors can benefit from higher returns.