At Stellantis Investor Day, Cost Cuts and China Take Top Focus

Tavares and other executives are expected to address Chinese competition, financial discipline, upcoming products, software initiatives and potentially further cost reductions as the company aims to achieve ambitious financial goals by 2030.

When Tavares’ Groupe PSA merged with Fiat Chrysler in January 2021, the newly merged company decided to cut its spending by 5 billion euros, or about $5.4 billion, per year. This is a goal that the company says it will achieve in 2024, a year ahead of schedule.

Most recently, Tavares said the parent company of brands like Ram and Jeep needed to eliminate 40% of its costs to be able to profitably produce and sell electric vehicles to mass market consumers, citing the need for affordable models despite the costs. higher vehicle manufacturing costs. .

“We are not in the race to transition to electric vehicles, but to reduce the costs of electric vehicles,” Tavares said in late May at a Bernstein investor conference.

These reductions are part of Stellantis’ strategic plan to increase profits and double revenues to €300 billion by 2030. The plan also includes targets such as achieving an adjusted operating profit of more than 12% and an industrial free cash flow of more than 20 billion euros.

Savings measures have included overhauling the company’s supply chain and operations as well as workforce reductions.

Several Stellantis executives described the cuts to CNBC as difficult but effective. Others, who spoke on condition of anonymity because of the potential repercussions, described them as exhausting to the point of being excessive.

Since the merger was agreed to in December 2019, Stellantis has reduced its workforce by 15.5%, or about 47,500 employees, through 2023, according to public filings. Additional job cuts this year, involving thousands of factory workers in the United States and Italy, have angered unions in both countries.

Meanwhile, the billions in associated operational savings helped increase the automaker’s adjusted operating profit by 31% between 2021 and last year. Its adjusted profit margin is also up, increasing 0.4 percentage points over this period to 12.8%.

Ned Curic, Stellantis’ chief technology officer, said the company was operating much more efficiently than before, including “proper systems engineering” to ensure the design and operation of its new vehicles were optimized.

Curic, who joined the company after leaving Amazon in 2021, said the workforce reductions, including the layoff of about 400 U.S. engineers in March, come after the company completed many of its systems for the next decade.

“We’ve reduced our workforce, but we really don’t need to,” he said in an interview last month, adding that the company still employs about 50,000 engineers. “To design the systems for our 10-year roadmap, it’s already done.”

Tavares, when asked last month whether additional cuts would be necessary in the United States, said “we’ll see.” He said officials “still have work to do” to make electric vehicles as cost-effective as traditional internal combustion engine, or ICE, vehicles.

“There is no silver bullet here. You have to add 40% more costs, because the middle class in the United States, just like the middle class in Europe, has to buy electric vehicles at the price of ICE,” he said. he declared during a press conference. round table in May. “It’s no surprise. You can look at my comments from the last five years. I’ve been running the same activities for five years.”

Future cost-cutting efforts could be part of the company’s capital markets day on Thursday.

On Thursday, executives will present developments in Stellantis’ regions and businesses, including its financial and operational disciplines, according to Stellantis Chief Financial Officer Natalie Knight.

“We want to help you better understand how we see the industry evolving, how we leverage exceptional technology, our industry-leading operational discipline and other competitive advantages that further set us apart,” she told investors in april. “And how we build a powerful and productive capital discipline that helps us maintain and maximize sustainable returns.”

Stellantis declined to release details ahead of the event, which will take place at its North American headquarters in Auburn Hills, Michigan.

Wall Street will be looking for executives to address growing U.S. vehicle inventory levels, upcoming product launches and plans for China.

In early May, Cox Automotive reported that Stellantis’ supply of Jeep and Ram brand vehicles was more than twice the industry average of 76 days.

Meanwhile, the threat of cheaper electric vehicles made in China looms in the background.

Tavares called Chinese automakers the “No. 1 competitor” and said the company was adopting an “asset-light” strategy. This includes plans to rapidly increase the country’s vehicle exports through a Stellantis-controlled joint venture with China’s Leapmotor.

“The reaction of stock prices on (capital markets day) will likely be determined by how these near-term concerns are addressed. We do not anticipate any new financial target announcements,” wrote analyst Patrick Hummel at UBS, in a note to investors Thursday. .

Hummel and other analysts have noted a divergence in Stellantis’ stock performance compared to that of General Motors and Ford Motor.

Stellantis’ U.S.-traded shares are down more than 6% this year and about 30% from an all-time high of more than $29.50 per share in March. In contrast, GM shares are up more than 30% this year, and Ford shares are essentially flat.

RBC Capital Markets analyst Tom Narayan notes that Stellantis, which has a market capitalization of around $68 billion, is expected to return €7.7 billion to shareholders in 2024, or €4.7 billion in dividends. and 3 billion euros in buybacks.

Redburn Atlantis analyst Adrian Yanoshik said in a note last week that largely moderate expectations increased Stellantis’ potential to beat expectations.

—CNBC Michael Bloom contributed to this report.