Stellantis NV

Stellantis recorded revenue growth of 13% in the second quarter, led by a strong volume recovery in North America. Adjusted operating income margin was 1.8% in the second quarter, up year over year but weaker sequentially. The lack of operational leverage in North America disappoints.

Why it matters: While revenue figures show improvement driven by volume growth, profitability per vehicle is decreasing across all regions, including South America and the Middle East and Africa, where sales volumes are at all-time highs. Sales volumes in North America have seen a strong turnaround, up 38% in the second quarter year-over-year, outperforming the market handsomely, and returning to levels at the half-year of 2024. Yet profitability is still far from the same comparison base, with a 2026 half-year margin of 2% versus 11% at the 2024 half-year. Management explained this by product-quality issues with higher associated warranty costs and a high-cost base. High-volume vehicles expected to roll out late 2027/ 2028 are guided to increase capacity utilization. Flat revenue despite 5% volume growth in Europe emphasizes the extent of price competition in the region as Chinese competition ramps up, sending the region back into loss-making territory in the second quarter. We do not think Stellantis is doing enough on the European cost base to counter the competition that is just beginning.

The bottom line: We are reducing our fair value estimate for no-moat Stellantis to EUR 8 per share. With increasing competition in Europe, in particular, we reduce our pricing assumptions for the region, assuming no price growth going forward. We also reduce our pricing assumption for South America. This is a primary reason that our group margins remain considerably below management's midterm guidance.

We reduced our fair value estimate for Stellantis to $10 per ADR to reflect the increasingly competitive environment, which is reducing the company’s ability to pass through price increases, particularly in Europe.

We value the automotive division using a 10-year explicit forecast period for stage 1 of the Morningstar discounted cash flow model. We forecast low-single-digit top-line growth for Stellantis over the explicit forecast period. Our view is that the traditional OEMs will continue to lose market share to the Chinese EV OEMs in Europe. We forecast Stellantis as the weakest among its European peers, thus experiencing higher volume losses than its average European peer.

This is familiar. In 2009, the Chinese government initiated its program of financial subsidies to electric vehicle companies. The spike in oil prices following the Russian invasion, along with greater environmental awareness after the covid pandemic, drove global policy support for EVs. The utility gain from more-advanced, lower-cost Chinese electric vehicles outweighed the hesitance toward lesser-known foreign brands in Western countries. To meet the rapid rise in demand for the first wave of electric vehicles, Western companies sought to partner with Chinese electric vehicle companies (Stellantis-Leapmotor, Volkswagen-XPeng). Western governments have also enacted large import tariffs to protect local industry. Chinese automotive manufacturers (BYD, Chery, Geely, SAIC) have either already or are planning to build local manufacturing plants in the West. China’s share of European vehicle sales was 2% in 2020 and 6% in 2023.

Total shipments grow at an average of 1% per year over the forecast as volume losses in its highest-volume segment, Europe, are offset by some volume recovery in the US, growth in its third engine, and Leapmotor International. While volume growth is front-loaded to account for some recovery, given the fixed product offering, we do not expect group volumes to return to 2023 levels. Average revenue per user grows at a low-single-digit CAGR. Pricing pressure in Europe is not being fully offset by inflationary increases elsewhere. We believe that Stellantis’ best-cost sourcing initiative, ruthless cost-cutting, procurement initiatives, and the simplification of its platform portfolio will not fully offset the lack of pricing power, EV mix dilution, and increased amortization on the first use of the new multienergy platforms. We forecast midcycle adjusted operating margins of around 4%.

Our no-moat rating implies a continued need for high levels of capital investment to maintain market share. We forecast an increase in capital expenditure from current levels, with capital expenditure and research and development averaging 8% of revenue over the explicit forecast.

The financial services book is small relative to the group’s assets. Despite its fast growth in North America, we have valued the firm as a whole based on its free cash flows, but have valued the financial book separately to indicate its contribution to group value.

We think a higher cost of equity is reasonable, given the number of industry headwinds and high uncertainty, leading us to a 9.9% weighted average cost of capital.

We assign Stellantis a Morningstar Economic Moat Rating of none.

The automotive industry is highly cyclical, competitive, and capital-intensive. As a result, the industry has delivered a positive value-creation spread in only five out of the past 10 years, with an average revenue-weighted return on invested capital of 6%.

We do not believe that Stellantis has a brand advantage.

A superior gross margin indicates pricing power. Stellantis’ historical average gross profit margin is in line with the industry average and with other mass-market peers. Its 2024 and 2025 adjusted gross margin came under severe pressure, contracting to low teens and below industry averages. In contrast, Porsche, Aston Martin, and Ferrari realize superior average gross margins of around 25%, 34%, and 50%, respectively, indicative of brand and pricing power, in our view.

A key metric in assessing brand loyalty is market share trends over time. Since the merger, Stellantis has lost market share in its two key regions. In North America, its market share declined from 12% in 2021 to 8% in 2025. In Europe, its market share declined from 19% in 2021 to 15% in 2025. In both regions, Stellantis ranked among the two largest in terms of market share losses since the merger.

The automotive sector conducts several brand loyalty surveys. In the US, JD Power studies have not featured Stellantis’ brands in the top three rankings of the mass-market category over the past five years. Ram placed fourth between 2019 and 2021. In the truck category, Ford and Toyota place at the top overall. Again, in the US, IHS Markit has consistently ranked GM, Ford, and Tesla as winners in terms of overall loyalty to make and manufacturer since 2016. Jeep, Ram, and Dodge used to appear as frequent winners in their respective niches: midsize utility, light-duty pickup, and sports car. This has changed over the past two years. Brand Keys’ global Customer Loyalty Engagement Index consistently ranks Hyundai top in the automotive category. Consumer Reports collects data from thousands of vehicle owners, surveying whether customers would buy the same vehicle again. Ram ranked ninth in 2023, but has since dropped off the list. Dodge and Jeep rank in the lowest quartile in the latest survey. YouGov’s global automotive survey does not feature any of Stellantis’ brands in its top 10 overall brands. However, Stellantis’ regional strengths are somewhat reflected in its rankings in France (Peugeot third, down from first, Citroën ninth, down from sixth), and Italy (Fiat second; Alfa Romeo has dropped off the list).

While Stellantis does not disclose its advertising or marketing spending—it’s included in selling, general, and administrative expenses—the company has one of the lowest ratios of SG&A expenses to revenue. Coupled with the widest brand portfolio (14 brands), we question whether each brand gets the marketing and distribution support required to win the top rankings. All else being equal, its spending per brand ranks far lower than any other among the top 10 automotive OEMs.

We do not believe that Stellantis has a maintainable cost advantage.

Without a strong brand, the capital intensity and relatively high fixed-cost base of the automotive sector make scale a tool for competing rather than a low-cost competitive moat. This is indicated by the strong direct relationship between vehicle sales volumes and EBITDA margin. Stellantis sells approximately 6 million vehicles per year and generated a three-year average EBITDA margin of 15% (prior to 2024’s profit squeeze). In comparison, Volkswagen sells over 8 million vehicles a year at an EBITDA margin of 18%, while Honda sells approximately 4 million vehicles a year at an EBITDA margin of 12%. Leveraging scale was the key motivation for the FCA-PSA merger.

Despite high capital and regulatory requirements, a cost advantage from scale is not a sufficient barrier to entry—as evidenced by increasing market fragmentation. Instead, companies with true brand and technology-driven low-cost advantages have shown to quickly gain scale. Tesla, with a brand and cost advantage moat, entered the top 20 largest OEMs within five years. BYD has increased its vehicle sales by 10 times over the past 10 years and is now the sixth-largest automaker globally.

Stellantis generated some of the highest returns in the industry between 2021 and 2023. This has proven untenable, consistent with our no-moat rating of the company. A portion of Stellantis' superior return profile was attributed to the outsourcing of its financial services book. Stellantis has begun aggressively increasing its financial services book in the US. Also, Stellantis has had the lowest capital intensity ratio (capital expenditures plus R&D/revenue) among peers, limiting growth of the return denominator. We have seen, however, that Stellantis has been one of the largest losers of market share. So, rather than recognizing an efficiency in capital allocation, we foresee spending needing to increase to compete effectively. Looking at industry leader Toyota, we see a consistent pattern of capital expenditure-to-sales leading market share changes since 1991—dips in investment are followed by declines in market share, and vice versa.

Many European automakers have recognized that Chinese automotive OEMs are producing electric vehicles at 30%-40% lower cost than they are, for now, at least. Stellantis estimates that 85% of the cost advantage comes from outsourced parts, with batteries and drivetrains accounting for the majority. So, while scale, operational expense cost-cutting, and best-in-class benchmarking on productivity can support margins, this is only 15% of the production cost.

Stellantis is targeting cost parity between internal combustion engine and battery-electric vehicles by 2028. While this vehicle will be manufactured in Europe, its lower-cost technology and key material inputs leverage its Chinese partnerships, CATL and Leapmotor, to make it possible.

The completion of Stellantis’ product rollout in Europe and North America during 2025 will support market share recoveries in its two key regions in 2026. Consequently, operating leverage occurs as quickly as its deleveraging in 2024.

Its Leapmotor joint venture allows Stellantis to reach a competitive EV cost structure in Europe ahead of peers, allowing for competitive pricing and better market share performance than expected.

The strategic focus on the US drives a recovery in brand loyalty for Ram, Dodge and Jeep, quickly returning the region to high single-digit margins.

The new leadership fails to deliver critical milestones on time, such as closing market gaps, which indicates the start of a turnaround. Further investor confidence is lost.

Stellantis maintains its lean expense approach, with lower spending on marketing and research and development, risking market share.

With increasing duties from developed countries against Chinese imports, Chinese production is more quickly diverted to regions such as South America, the Middle East, and Africa, increasing competition in highly profitable regions for Stellantis.