Fitch Ratings has revised Stellantis N.V.’s outlook to negative from positive, citing key drivers behind the decision. The automaker’s weaker-than-expected performance in North America has significantly impacted profitability and free cash flow (FCF) margins, leading Fitch to lower expectations for the company’s EBIT margin to 6.2% in 2024 and 7.7% in 2025. The company’s failure to reduce excess inventory and continued challenging pricing conditions in North America and Europe are central to this downgrade.
Stellantis’ profitability has been cut, with guidance for 2024 reduced to a range of 5.5%-7%, down from the double-digit targets set earlier in the year. This is due to anticipated operating losses in North America in the second half of 2024. While a recovery in the EBIT margin to over 7% is expected by 2025, a full turnaround in the North American market is not anticipated in the short term.
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Inventory management issues have also weighed heavily on Stellantis’ cash flow. Its inventory levels, particularly in North America, are above those of its US and German peers, with more than 80 days of sales outstanding. The company’s previous pricing strategy, which had bolstered profitability, has now become a liability as consumers focus more on affordability.
Stellantis’ US shipments are expected to be cut by 200,000 units in 2024 to address the ageing inventory. As a result, Fitch forecasts a cash burn of over EUR10 billion in 2024, a significant revision from earlier expectations of a neutral cash flow.
Competition, especially in Europe, adds further pressure. Stellantis, alongside Renault, is highly exposed to growing competition from Chinese manufacturers in the European market. This includes the rise of affordable Chinese electric vehicles (EVs) and increased consumer preference for hybrid models from Korean manufacturers. Stellantis’ ability to compete in the luxury market also remains a challenge, particularly when compared to its German peers, as it seeks to revive its luxury brand presence amidst intensifying competition from pure EV makers.
Stellantis’ financial structure remains strong, supported by a net cash position, but Fitch has noted limited headroom under the leverage sensitivity. This could be further constrained by more shareholder-friendly policies. The automaker’s performance and strategic execution in addressing these challenges will be key in determining future ratings.
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