Stellantis Under Pressure to Address Weak Margins and High Inventory
Introduction:
Stellantis, the world’s No. 4 automaker, is facing challenges with weak margins and high inventory in its U.S. operations. Chief executive Carlos Tavares has issued a warning that underperforming brands in the company’s portfolio may be axed if they fail to make money. This marks a shift in strategy for Tavares, who had previously maintained that all 14 brands in the Stellantis group have a future. The company’s shares have taken a hit following worse-than-expected first-half results, with Tavares emphasizing the need for profitability in all brands.
### Evaluating Brand Profitability
Stellantis does not disclose individual brand figures, except for Maserati, which reported an 82 million euro operating loss in the first half. Analysts speculate that brands like Maserati, Lancia, and DS could be at risk of being sold or scrapped due to their minimal contribution to overall sales. Stellantis has also added China’s Leapmotor as its 15th brand with a cooperation agreement in place, signaling a broader international focus for the company.
### Market Performance and Pressure
Stellantis’ shares have seen a sharp decline this year, making them the worst performer among major European automakers. The company is under pressure to improve margins and sales while reducing inventory in the United States. Tavares is focused on launching 20 new models this year to drive profitability, but the challenges remain as global carmakers grapple with weakening sales outlooks, the shift to electric vehicles, and increased competition from Chinese rivals.
### Operational Challenges in North America
Chief Financial Officer Natalie Knight highlighted that North America is the market requiring the most attention from Stellantis. The company is implementing decisive actions to address operational challenges, including production reductions and price adjustments in the region. Analysts believe that these problems may persist until Stellantis addresses inventory levels, which could impact full-year margins.
### Financial Performance
Stellantis reported a 40% decrease in adjusted operating income for the first half of the year, falling below analyst expectations. The company’s margin on adjusted EBIT dropped below the targeted double-digit threshold, indicating the need for improved cost efficiency and operational performance. Tavares has committed to working with the U.S. team over the summer to enhance performance and reduce inventory levels in the region.