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Gear shift

28 Oct 2021 By Lisa Jucca

Stellantis is gaining ground against rival Volkswagen. Hit by a global chip shortage, the maker of Peugeot and Jeep reported a bigger drop in sales than the $140 billion German giant. Yet the Franco-Italian group’s margins still look healthier. And Chief Executive Carlos Tavares is tackling its long-standing weakness in electric vehicles.

The chip crisis has erased about a quarter of shipments at both carmakers in the three months to the end of September. For Stellantis, that resulted in a year-on-year revenue fall of 14% to 32.6 billion euros. For Volkswagen, which has a sizable financial services division, the contraction was just 4%.

Yet Volkswagen’s profitability looks shakier. The group’s operating profit fell to 2.8 billion euros in the quarter, below analyst expectations, dragging its margin to 4.9% of revenue, against 5.4% in the previous quarter. Although CEO Herbert Diess promptly hinted at cost cuts to come, the weak performance means analysts’ forecasts for an EBIT margin of 7.5% this year, as per Refinitiv estimates, now look optimistic. At Stellantis, Tavares is still targeting a margin of around 10%.

Tavares is also finally getting to grips with the electrification challenge, where Stellantis has historically lagged greener peers like Volkswagen. The Portuguese executive in July pledged to invest more than 30 billion euros by 2025 in developing new battery vehicles and software. By 2030, he expects 70% of Stellantis’s sales in Europe and 40% in the United States to be low-emission vehicles, up from 14% and 4% respectively this year. Early next year, Tavares will also unveil his new strategy on China, another traditional weak spot.

Investors are giving Tavares some credit. Stellantis’s stock has risen nearly 50% this year, against 30% for Volkswagen. Yet at 4.8 times its forward earnings, the Franco-Italian group is trading at a discount of around 25% to Volkswagen’s 6.4 times, and it has a lower multiple than most global peers. That persistent valuation gap looks increasingly hard to justify.


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