Stellantis N.V.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

Stellantis is a global automotive and mobility company, primarily engaged in the design, engineering, manufacturing, distributing, and selling vehicles and parts across various brands, with a focus on both traditional internal combustion engines and new electric vehicle technologies.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Stellantis was formed in 2021 through the merger of Fiat Chrysler Automobiles (FCA) and Peugeot S.A. (PSA) and is based in the Netherlands. It owns a diverse range of automotive brands including Jeep, Chrysler, Dodge, RAM, Fiat, Peugeot, Citroën, and Opel.

Revenue Distribution

Stellantis’ revenue streams are broadly classified under the following segments:

  • North America: This region is the largest revenue contributor with a focus on trucks, SUVs, and luxury vehicles. Key brands here include RAM, Jeep, and Chrysler. This region accounted for €88.4 billion in net revenues in 2023.
  • Europe: A significant contributor driven by sales of brands such as Peugeot, Citroën, and Opel. This region accounted for €76.5 billion in net revenues in 2023.
  • South America: This region’s market is primarily driven by Fiat and Jeep, with a strong focus on localized consumer preferences. This region accounted for €12.6 billion in net revenues in 2023.
  • Middle East and Africa: A moderately growing market, with the key markets including Turkey, Algeria, and Egypt. This region accounted for €7.8 billion in net revenues in 2023.
  • China & India & Asia Pacific: The emerging markets in this area are seeing rapid growth, but with a lower share of global sales. Stellantis sells Jeep in China and a variety of other global brands in the region. This region accounted for €12.8 billion in net revenues in 2023.

The automotive industry is undergoing a profound transformation driven by:

  • Shift to electric vehicles: This is a key trend in the automotive industry, with governments around the world increasingly mandating a shift away from ICE vehicles and into electric and hybrid vehicles. Consumers are also opting for electric vehicles at an increasing pace.
  • Autonomous driving: The self-driving market is expanding, though slowly. Autonomous vehicles, which will be integrated with AI are expected to disrupt the industry.
  • Connectivity and software: The car is increasingly becoming a computer on wheels. The ability of companies to combine software, technology and services is very critical.
  • Globalization and Market Consolidation: As the world becomes more and more connected, the companies are becoming more global and competitive. As a result, the auto industry is undergoing consolidations at a rapid pace.

Competitive Landscape

Stellantis operates in a highly competitive market. Major competitors include:

  • Toyota: The largest auto company in the world with operations globally
  • Volkswagen: Dominant in the European market, focusing on lower-priced vehicles.
  • General Motors & Ford: Key American players with strong expertise in the truck and SUV market.
  • Hyundai & Kia: These companies are taking market share by offering more value to the customer.
  • Tesla: A key player in the Electric Vehicle market, with a strong software and technology focus.
  • Chinese manufacturers: Local Chinese companies are increasingly competing in local markets.

What Makes Stellantis Different?

Stellantis aims to be different in these aspects:

  • Brand Portfolio: Unlike other competitors, they have a huge portfolio of diverse brands, which allows them to target a large customer base, and helps them protect against the loss in a certain brand by having other alternatives available.
  • Global Reach: They have a global manufacturing footprint and also have a global sales base.
  • Product Leadership: Stellantis claims that it is the clear leader in each segment it operates, by virtue of creating leading edge products and providing innovative solutions in automotive sector.
  • Transformation to BEVs: They plan to invest 30 Billion Euros in electrification and software development and plan to offer 25 battery electric vehicles in the US and 20 in Europe by 2030.
  • Focus on Value Chain: Stellantis is vertically integrating its supply chains to reduce costs and maintain stability.

Moat Analysis

Sources of Competitive Advantage

Pat Dorsey’s “The Little Book that Builds Wealth” highlights these sources of moats:

  • Intangible Assets: Brands, patents, and regulatory licenses. Stellantis possesses several renowned brands with significant customer loyalty but that has been affected in the recent years by increasing competition. They do have some patents, but the car industry as a whole is not known for extremely high amounts of patents, which can be copied and changed.
  • Switching Costs: High costs or difficulty for customers to switch. Switching costs are not particularly high in the auto industry, where customers readily switch between brands.
  • Network Effect: Where the value of a product or service increases as the number of users grows. It doesn’t have meaningful network effect which is a crucial component.
  • Cost Advantages: Cost-based advantages from cheaper processes, better locations, or unique assets. Stellantis is actively pursuing cost-cutting and manufacturing efficiencies but is facing high input costs, particularly from commodities, like lithium.

Moat Rating: 2 / 5

Stellantis has a limited moat and it does not have very strong competitive advantages. While it has an extensive portfolio of recognized brands and a vast scale, many new companies are entering the industry which is reducing its pricing power and eroding its long term advantage. The rising competition and lack of switching costs do affect the company, even though it has been focusing on efficiencies and cost cutting, and it can have a positive effect in the long term.

Risks to Moat and Business Resilience

Risks to the Moat

  • Technological disruption: The shift to electric vehicles and autonomous driving could disrupt traditional automakers, where new entrants, particularly from technology companies, can take the lead by offering higher quality products with better tech.
  • Intensified competition: The automotive industry has become very competitive with new entrants and rising competition from Asian and Chinese manufacturers. This might erode Stellantis’ market share and profitability.
  • Rising costs: The costs of the raw materials, especially rare earth materials for battery manufacturing, has been increasing due to the Ukraine war and general inflation. The battery production industry is largely controlled by a few companies, thus giving a disadvantage to Stellantis.
  • Supply chain issues: Automotive industry is subject to disruptions from supply chain and shortages, for things like semi-conductors and other critical components. It is a complex supply chain and can result in a negative effect on production and revenue.
  • Brand dilution: Having many brands could lead to diluting the uniqueness and prestige of each individual brand and reduces brand loyalty.

Business Resilience

  • Diversified portfolio: They have operations across multiple regions and product segments, reducing the dependence on individual markets and brands.
  • Cost reductions: They have ongoing initiatives for cost cutting, which improves their financial position.
  • Transitioning to electric: They are investing heavily into electric vehicles, positioning themselves to compete in the EV market
  • Scale: The large scale of the business creates many economies of scale and provides a competitive advantage.
  • Management: The management team is focused on a long-term growth strategy and value creation.

Financial Analysis

Income Statement

  • Revenues: Stellantis reported net revenues of €189.5 billion in 2023, a 6% increase from €179.6 billion in 2022. The growth was driven by higher shipments and improved pricing, which was partially offset by unfavorable currency exchange rates, particularly in South America. However, a very important part to note is the sales mix has changed, with a growing part of the sales coming from hybrid and electric vehicles.
  • Operating Income: Adjusted operating income increased to €24.3 billion, a 1% increase, with the profitability declining from 13% to 12.8% due to higher supply chain costs.
  • Net Profit: Net Profit increased 11% to 18.6 billion euros in 2023. However, EPS grew 24% due to share buybacks during the year.
  • Cash flow: Free cash flow of €12.9 billion which was slightly less that prior years as well as the company’s net profit.
  • Guidance: They have guided for a 4.4% growth in revenues in 2024, with margins and profits consistent with prior year.

Balance Sheet Health Rating: 4 / 5

  • Liquidity: The company has a strong liquidity position, with total liquidity of €61 billion in 2023, including cash and cash equivalents and available credit lines.
  • Debt: Net industrial debt was 6.9 Billion euros in 2023, which is a reasonable amount given the company size. The company’s target debt-to-equity ratio is 15 percent.
  • Assets: Total assets of €176.3 billion, which was more than total liabilities and equity of €172.1 Billion in 2023.
  • Strong Cash Flow: The company consistently produces a strong positive operating cash flow. In 2023, the company generated free cash flow of 12.9 Billion euros, though it was a lower than the previous year of 17.5 Billion euros.
  • Profitability: A high profit margin of 12.8 percent, which although decreased slightly in 2023, is still high enough.

Recent Concerns/Controversies

  • Lower vehicle pricing: Stellantis is seeing increasing discounting of its vehicles in order to maintain its volume growth which is negatively affecting profitability.
  • Uncertain EV Transition: They need to be able to ramp up their production capacity for EVs to keep up with the market demand and not lose market share. The supply chains need to be strong and reliable for that as well.
  • Labor unrest: Stellantis faced production disruptions in the US during the strike by UAW workers, which negatively affected its production and finances.

Understandability Rating: 3 / 5

Stellantis’ business model is relatively complex given its diverse global operations and brand portfolio and changing technological landscape. While the core operation of selling cars is straightforward, the underlying dynamics and challenges in auto industry are quite hard to predict, with many variables that need to be analyzed for the long-term health of the business. The supply chain, regulation, and changing consumer preferences are very critical factors in this industry. So it is a bit tough to fully understand how the company is performing in such an industry.

Summary of Financial Data

Metric 2021 2022 2023
Net Revenues (€ Billion) 152.1 179.6 189.5
Operating Income (€ Billion) 18 24.2 24.3
Profitability (%) 11.8 13.5 12.8
Net Profit (€ Billion) 13.5 16.8 18.6
Free Cash Flow (€ Billion) 16.1 17.5 12.9
Total liquidity (€ Billion) 54.4 59.7 61
Net Industrial Debt (€ Billion) 1.4 2.1 6.9

Conclusion

Stellantis is a major player in the automotive industry with a portfolio of recognized brands and a good presence around the world, but at the same time it is a company with many limitations, especially against the backdrop of an industry transformation towards electric vehicles and autonomous driving. Its moat is a bit narrow, and while the company is pursuing the right strategic direction with investments in EVs and cost cutting, it does have its fair share of risks and it will be interesting to watch the company evolve in the coming years.