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Road hog

3 March 2021 By Christopher Thompson

Defensive driving means motorists anticipate potential accidents before they happen. Stellantis Chief Executive Carlos Tavares should take note. His 43 billion euro carmaker is powering ahead with bold cost-cutting and profitability targets. But there are two looming potholes in the road: the group’s diminishing market share in Asia and an unambitious electric vehicle plan.

Stellantis – formed in January after the merger between Fiat Chrysler Automobiles and Peugeot – had a decent enough pandemic. The French unit’s robust profitability offset a steep 44% year-on-year drop in the Jeep maker’s operating profit. A strong rebound in fourth-quarter sales combined with a respectable 2020 operating margin of 5.3% lends credibility to Tavares’ aim to raise the latter to between 5.5%-7.5% this year. Projected cost savings of 4 billion euros over the next four years should ensure he hits the upper end of that range, well ahead of Volkswagen’s comparable 6.5% operating goal.

Still, two formidable potential challenges lie ahead.

First, Tavares is overwhelmingly dependent on North America and Europe, which accounted for nearly nine out of every 10 vehicles sold last year. That’s OK when those two markets are expected to grow sales at a chunky 8% and 10% this year. But longer-term, Tavares needs to reverse what looks like deceleration in Asia, which accounted for just 2% of combined sales in 2020, and specifically China. Peugeot’s market share in the world’s largest auto market slipped to 0.2% from an already puny 0.5% a year ago.

Secondly, Stellantis’ reliance on gas-guzzling SUV sales in the United States, a legacy of Fiat Chrysler’s most lucrative business, means Tavares should present a meatier plan outlining how the group plans to transition into electric vehicles. At present, it aims to merely offer a full battery equivalent to its combustion engine fleet in Europe by 2025. That looks lightweight compared to rival Volkswagen, which wants carbon-free rides to account for a fifth of total sales by the same date and has pledged to invest some 35 billion euros in the electrification technology.

Despite enviable near-term financial speed, Stellantis shares are still choking on rivals’ exhaust fumes. Even after a 3% bump on Wednesday, the group trades on a low-gear 7 times forward earnings, below Volkswagen and U.S. competitor Ford Motor on 8 times and 11 times respectively, according to Refinitiv data. Unless Tavares can do some defensive swerving, that gap will not close swiftly.


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