Stellantis profit hit by tougher competition from China

Stellantis' Ram 1500 Revolution electric battery-powered pickup truck at an industry show. (John Locher/AP)

Stellantis NV’s profitability remained under pressure in the second quarter from intensifying competition in Europe, where Chinese brands are expanding with affordable electric and hybrid models.

Adjusted operating income of 293 million euros ($335 million) in the period came in below analyst estimates, with Stellantis on July 30 citing high raw-material costs and weak pricing in Europe. Rising group sales and a return to net income in the period failed to excite investors.

Stellantis shares fell 5% as of 10:50 a.m. in Milan. They’re down 47% this year, the worst-performing stock in the Europe Stoxx 600 Index in the period.

The pricing pressure in Europe, where the likes of BYD Co. are winning over clients, “is upsetting the market,” said Pierre-Olivier Essig, an analyst at AIR Capital. “Robust North America figures are not sufficient to remove fears on the turnaround — Stellantis is clearly not out of the woods yet.”

CEO Antonio Filosa is trying to make Stellantis leaner to respond to the challenges, echoing steps taken by virtually all of his European peers. BMW AG earlier July 30 reported better-than-expected profit from carmaking after accelerating cost cuts, with similar measures underway at Mercedes-Benz Group AG and Volkswagen AG. 

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Filosa 

Renault SA shares slipped even after the French manufacturer reported solid earnings late July 29, with analysts pointing to the same Chinese competition that’s hitting Stellantis.

To get back on track, Filosa is pairing his efficiency measures with some 60 billion euros in spending through 2030 on dozens of new models. The group wants to prioritize the Jeep, Ram, Peugeot and Fiat brands while improving quality. It’s also betting on partnerships with China’s Zhejiang Leapmotor Technology Co. and Dongfeng Motor Corp. to help fill up some of its underused plants in Europe.

In the important North America market, progress has been uneven. Sales and adjusted earnings improved there in the period on robust demand for models like the Ram 1500 pickup truck with a more powerful engine, but the company’s above-average product recalls continue to weigh on profitability. 

Stellantis has had to fix multiple models in recent months, including more than 1 million Jeep Wrangler and Gladiator vehicles in the U.S. because of a fire risk. The company earlier this month named new leaders for Jeep and Ram to bolster its turnaround.

In Europe, where the group is partnering with Leapmotor on sales, shipments increased 5% due to healthy demand for smaller cars including the Fiat 500 and the Citroën C3 Aircross. Stellantis’ operating margin improved but remained below zero, with the company citing negative net pricing and raw material inflation.

Chinese automakers including BYD, Xpeng Inc. and and Geely Automobile Holdings Ltd. are already dominating EV sales in China. Now they’re expanding in Europe, putting pressure on mass-market manufacturers with competitively priced hybrids and EVs. 

Over in Germany, Volkswagen CEO Oliver Blume is trying to squeeze savings from car production, management ranks and the number of bumper combinations it offers after his push to shutter German factories ran into union opposition.

Stellantis targets 6 billion euros in annual savings by 2028 compared to last year’s level. Earlier this week, it agreed to sell its car-sharing business Free2move to a German private equity firm, part of its efforts to exit unprofitable businesses and refocus investments on core brands and regions.

The automaker said July 30 it’s expecting net tariff headwinds of as much as 1.2 billion euros this year. It reaffirmed its financial guidance for the year.