STLA: Why is the Stellantis Share Price in a Slump?

Stellantis [STLA]is a Dutch-US automaker that owns more than a dozen well-known brands, among them Citroën, Peugeot and Jeep.

This stock spotlight will discuss how Stellantis plans to take inspiration from Chinese electric vehicle (EV) makers’ low-cost approach to production. It will also look at how the Stellantis share price could be affected by its growth ambitions in Europe, a sales slump in North America, and calls for a new CEO.

Becoming Chinese

Stellantis CEO Carlos Tavares wants the automaker to be more like China’s top car makers.
 
Tavares said at a Reuters Events conference in May that the company needed to “try to be Chinese” if it is to be competitive in the face of trade barriers.
 
He criticized tariffs introduced by the US and EU, arguing that they ignore the fact that Chinese automakers are able to produce EVs for a third of what it costs legacy automakers.
 
Stellantis’ first step to adopting a low-cost mindset was taking a 20% stake in Leapmotor [9863:HK] in October 2023. The Hangzhou-based EV start-up shipped its first batch of cars to Europe through Stellantis in July.

STLA Stock Stuck in Reverse

The Stellantis share price has been struggling this year; it is down 35.64% year-to-date through September 30 and down 21.51% in the past 12 months.
 
STLA stock sank to a new 52-week low of $13.76 on September 30 after the company slashed its full-year profit forecast, citing weak global sales and competition from Chinese automakers. The stock closed at $14.05, a 52.39% fall from its 52-week high of $29.51, set on March 25.

Stellantis Disappoints More Than Ford and General Motors

Sentiment around STLA stock has been waning, especially since the company reported its H1 results on July 25. Net profit for the six months to June 30 slumped 48% year-over-year in the first half of 2024, while revenue was down 14%.
 
Tavares admitted that the earnings report “fell short of our expectations, reflecting both a challenging industry context as well as our own operational issues.”
 
In comparison, Ford’s [F] H1 net income fell 13.91% while its revenue grew 4.86% year-over-year. General Motors’ [GM] H1 revenue was up 7.44% and net income rose 18.00%.

Source: Yahoo Finance
 
Although revenue growth may be an issue over the next 18-24 months, given that the Stellantis share price is trading a little above its 52-week low, STLA stock could be considered undervalued. However, the share price could come under more pressure if its upcoming quarterly earnings continue to disappoint.

STLA Stock: The Investment Case

The Bull Case for Stellantis

While growth in Europe fell slightly in Q2, with sales coming in at 702,000 units versus 724,000 units in the year-ago quarter, sales were up 0.9% for the first half of 2024.
 
Stellantis was the number-one brand in France, Italy and Portugal at the end of June, taking a 13.3% share of the battery EV (BEV) market and an 18.2% of the total vehicle market.
 
In its H1 report, the automaker reiterated its target of European passenger car and light-duty truck sales being 100% BEV by 2030, as it first set out in its Dare Forward 2030 manifesto. Its target for the US is for BEVs to be 50% of its sales mix.

The Bear Case for Stellantis

North America shipments declined 20.71% year-over-year to 402,000 units in Q2, making it the worst-performing region. As a result, Stellantis’ board is under pressure to replace Tavares to boost sales.
 
In a video message published in August, the United Auto Workers called on Stellantis to name a new CEO, criticizing the sales slump and factory production cuts.
 
“Stellantis is in a race to the bottom,” the union’s president argued, adding that Ford and GM are doing just fine in comparison — hence, in his opinion, it is not a US industry problem.
 
The Financial Times has quoted a person familiar with the matter as admitting that it is “unlikely” Tavares’ contract will be renewed when it expires in early 2026. Whoever comes in will need to put the company on the road to improvement quickly.
 
If the eventual successor fails to drive up North American sales, then this could weigh on the Stellantis share price.
 
Meanwhile, Italian unions have also called for strikes at Stellantis on October 18 due to falling production levels, according to a Reuters report from last week. The automaker expects to make 500,000 vehicles in Italy this year, down from approximately 751,000 in 2023.

Conclusion

The long-term outlook for EV demand remains intact, which should stand Stellantis in good stead as it invests €50bn to achieve its electrification targets by the start of the next decade. Nonetheless, in the near term there will still be challenges, especially in the US, which could weigh on STLA stock.

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