In the first half of the year, Stellantis (NYSE:STLA), the automaker that owns the Chrysler and Fiat brands, struggled mightily. Indeed, the company’s share of the North American and European markets fell significantly, while its financial results plunged compared with the first half of 2023. But all hope is not lost for Stellantis and Stellantis stock.
That’s because the deliveries of the company’s hybrid and electric vehicles soared in Europe in the first half of the year, while the automaker intends to launch multiple vehicles that have a great deal of potential in the coming months. What’s more, Stellantis plans to introduce widespread cost-cutting measures in the medium-to-long term that should meaningfully boost its bottom line, while the valuation of Stellantis stock is quite attractive at this point.
Still, until the Street becomes convinced that these steps are boosting the company’s financial results, Stellantis stock is likely to underperform its peers and the entire equity market. Moreover, the latter process could take many months or even years. Therefore, I recommend that investors sell the shares at this point.
First Half Struggles
In the first half of the year, the number of registrations of Stellantis’ diesel vehicles plunged 20.5% versus the same period a year earlier, while its overall market share on the continent fell to 16.6% from 17.4% in the first half of 2023. And in the U.S., the company’s overall unit sales sank 16% in the first half of 2024, while its North American market share fell 1.8 percentage points compared with the first half of 2023 to 8.2%.
Given these numbers, it’s unsurprising that the company’s financial performance sank sharply in the first half of this year. Indeed, its net profit tumbled 48% year-over-year (YOY) to 5.6 billion euros while its operating profit, excluding certain items, fell by 5.7 billion euros YOY to 8.5 billion euros.
Among the problems that caused the automaker’s poor performance were elevated inventory levels in the U.S., manufacturing issues in the country, and unspecified marketing issues in America.
Stellantis’ Multi-Pronged Comeback Plan
Stellantis has previously showed it can significantly cut its costs, as the firm’s overall annual expenditures have fallen $9 billion compared to January 2021, when a merger between Fiat Chrysler and PSA Groupe created the firm. Now the company is looking to reduce its outlays much further in the coming years by producing about 750,000 vehicles annually by 2027 in the low-cost markets of Morocco and Turkey. According to Stellantis, the cost of production in these countries is about 27% below the level that it pays to produce vehicles in its existing European plants.
Meanwhile, the automaker intends to launch over 20 new models this year. Jeep alone, led by a new CEO, is looking to introduce two new EVs and multiple plug-in hybrids. One of these vehicles, an EV called the Jeep Wagoneer S, appears to have a great deal of potential, as it appears to be attractive in a picture and will “be the fastest Jeep ever when it goes on sale, hitting 60 miles per hour in less than 3.5 seconds,” according to motor1. Meanwhile, the demand for plug-in hybrids has generally been growing rapidly in the U.S., so the company’s new vehicles in that class can very well be quite successful.
Meanwhile, the sales of the company’s hybrid and EVs jumped 31% in Europe in the first half of the year. With adoption of such vehicles expected to grow significantly in the continent over the longer term, Stellantis’ strength in this area bodes well for its long-term outlook.
Valuation and the Bottom Line
Stellantis remains quite profitable ,as it generated 5.6 billion euros of net income in the first half of the year. Meanwhile, the shares have a tiny forward price-to-earnings ratio of 3.2 times, well below General Motors’ (NYSE:GM) forward P/E ratio of 4.6 times and Ford’s (NYSE:F) forward P/E ratio of 5.4 times.
In light of Stellantis’ strong potential and the low valuation of Stellantis stock, I think that the shares could bounce back tremendously in the longer term. But I’ve learned that the Street, particularly in the current high interest rate era, prefers to see firms deliver concrete results before buying their stock. Therefore, I urge investors to sell the shares at this point.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
