Stellantis' warning causes multi-stock collision

Stellantis, a global automaker known for brands like Jeep, Dodge, and Fiat, recently revised its 2024 financial outlook, leading to a sharp selloff in its stock and ripple effects across the automotive sector. The company announced a significant reduction in its adjusted operating income (AOI) margin forecast, now expecting a range of 5.5% to 7%, down from previous double-digit estimates. The downward revision, largely driven by challenges in North America, also resulted in Stellantis forecasting a negative industrial free cash flow of €5 billion to €10 billion, compared to previous expectations of positive cash flow. These developments sent Stellantis shares tumbling by 13% in European trading, with U.S. shares following suit.

The automaker's issues in North America stem from elevated inventory levels and intensified competition, particularly from Chinese electric vehicle makers. To address these challenges, Stellantis is accelerating its plans to normalize U.S. inventory, aiming for no more than 330,000 units by the end of 2024, a target initially set for the first quarter of 2025. This move includes cutting shipments of over 200,000 vehicles in the second half of 2024 and implementing more aggressive incentives on older models to clear excess stock. Stellantis also temporarily halted production of its popular Jeep Wrangler and Grand Cherokee models due to high dealer inventories, compounding concerns.

The company's profit warning comes amid a broader deterioration in the global automotive industry. Stellantis is not alone in revising its outlook, as major European automakers like BMW, Volkswagen, and Mercedes-Benz have all issued guidance cuts recently, citing similar challenges. Chinese competition, rising costs, and weakening global demand have been recurring themes across the sector. Stellantis' warning also dragged down shares of other major automakers, including General Motors (GM), Ford (F), and Toyota, with GM and Ford shares falling by 3% and 2%, respectively.

In addition to market challenges, Stellantis faces labor unrest in the United States, where the United Auto Workers (UAW) union is preparing for a potential strike. The union's president, Shawn Fain, has expressed dissatisfaction with Stellantis’ current position in ongoing contract negotiations, and a strike vote is expected soon. This labor issue adds another layer of complexity to Stellantis’ efforts to stabilize its North American operations, as any disruption in production could further weigh on its financial performance.

The impact of Stellantis' revised outlook reverberated through the auto industry. European carmakers like Renault and Volvo also saw their stocks decline, with both companies losing more than 3% in value. In Asia, major car manufacturers such as Toyota, Honda, and Nissan suffered declines of over 6% amid the broader industry sell-off. The heightened competition from Chinese EV manufacturers has been a recurring concern for both European and Asian automakers, as these rivals gain market share with more affordable and technologically advanced models.

In summary, Stellantis' updated 2024 guidance paints a challenging picture for the automaker and the broader industry. The combination of elevated inventories, intensified competition, and market-wide weakness, particularly in North America, has forced the company to take drastic corrective actions. Despite these challenges, Stellantis expressed confidence that its remediation efforts will improve operational performance in 2025 and beyond. However, for now, the automaker—and the industry as a whole—faces significant headwinds, with investor sentiment reflecting the broader uncertainty.