Stellantis (STLA, Financial) saw its stock plummet by 14% to late 2022 lows after the automotive giant lowered its FY24 guidance. Known for brands like Chrysler, Dodge, Jeep, and Alfa Romeo, Stellantis cut its FY24 adjusted operating income margins to 5.5-7.0% from a previous double-digit forecast and revised its industrial free cash flow (FCF) to negative €5.0 billion to €10.0 billion from a previously positive outlook.
Key Factors Behind the Shift:
- Management cited the need to address North American performance issues and a broader downturn in global industry dynamics.
- Stellantis aims to normalize its U.S. inventory faster, targeting 330,000 units by the end of 2024, and will cut North American shipments by over 200,000 vehicles in the latter half of this year. The company will also increase incentives on older model-year vehicles and continue its cost-savings programs.
- Decreasing demand and rising competition, particularly in China, are contributing to the company's challenges. Higher inventories are also giving car buyers more options.
- Last week, Stellantis warned of worsening market forecasts, with global growth shifting from +1-2% to negative 1-2%, and highlighted North America as a weak spot with higher inventories.
Despite these warnings, Stellantis did not alter its guidance last week and maintained an optimistic tone about 2025. Today's significant guidance cut was unexpected, impacting other automakers like General Motors (GM, Financial), Ford Motor (F, Financial), Honda (HMC, Financial), and Toyota (TM, Financial). Semiconductor companies with automotive exposure, including On Semi (ON, Financial) and NXP Semi (NXPI, Financial), also saw declines.
While the situation is concerning, it's not all doom and gloom for Stellantis. The Federal Reserve's monetary policy shift, including interest rate cuts, could ease consumer financing costs. Stellantis is taking bold steps to right-size inventories and cut costs quickly, aiming to start the new year in a better position.
However, until Stellantis's aggressive initiatives show concrete results, investor sentiment may remain negative.
