Stellantis EV change is costing the company US$26B

Stellantis Stock Drop & EV Strategy Shift - Analysis by Tom Nion (RBC Capital Markets)

Key Concepts:

• Write-Down: A reduction in the book value of an asset, indicating it’s worth less than previously recorded.
• EBIT Margin (Earnings Before Interest and Taxes Margin): A measure of a company’s profitability, calculated as earnings before interest and taxes divided by revenue.
• Liquidity: The ability of a company to meet its short-term obligations.
• FX (Foreign Exchange): Fluctuations in currency exchange rates.
• DRAM (Dynamic Random-Access Memory): A type of semiconductor memory used in computers and other electronic devices; its demand can impact automotive production.
• Show-Me Story: An investment approach requiring concrete evidence of improvement before committing capital.

I. Financial Performance & Write-Down Details

Stellantis (parent company of Jeep, Ram, Dodge, Fiat, Citroen, and Alfa Romeo) experienced a significant stock decline, dropping over 20%, following the announcement of a $26 billion write-down. The majority of this write-down is attributed to adjustments in the company’s electric vehicle (EV) strategy, mirroring similar actions taken by Ford (though of a comparable magnitude after accounting for accounting differences) and, to a lesser extent, General Motors. The write-down isn’t necessarily indicative of a liquidity crisis; Stellantis possesses $46 billion in liquidity and bank availability.

II. EV Demand & North American Focus

The primary driver behind the EV-related write-down is weakening EV demand, particularly in North America. Several factors contribute to this slowdown: a policy shift impacting EV incentives, a saturation point reached post-pandemic stimulus, and the emergence of a robust used EV market offering more affordable options. Tom Nion of RBC Capital Markets notes that companies may have “gotten ahead of their skis” in the US, overestimating initial EV adoption rates.

III. Guidance & Market Reaction

While the write-down itself wasn’t the primary cause of the stock’s negative reaction, the company’s 2026 guidance proved to be the key concern. Stellantis projected low single-digit profit margins for 2026, significantly lower than the mid-single-digit margins the market anticipated. This discrepancy fueled investor disappointment and contributed to the stock’s decline. Nion suggests this guidance could be a deliberate act of conservatism by the new CEO, aiming to “reset the bar” and establish achievable targets.

IV. Regional Importance & Historical Context

North America is the crucial profit center for Stellantis, accounting for approximately 40% of its operating profit, compared to around 30% for Europe. The company was formed in 2021 through the merger of the French PSA Group and Fiat Chrysler Automobiles (FCA). Nion points to potential past missteps, suggesting previous management may have pushed pricing too high and underinvested in the business. The current management team is focused on “rightsizing” operations and revitalizing the company’s iconic brands.

V. Jeep Performance & Future Outlook

Despite the overall challenges, the Jeep brand maintains a strong presence, particularly in markets like Toronto. However, Nion notes that Jeep may have increased prices excessively. A key factor in Jeep’s future performance is the upcoming launch of the hybrid Cherokee in March. This model is designed to compete directly with the Toyota RAV4, a dominant player in the US auto market. The availability of this product is expected to significantly impact Jeep’s sales and potentially offset any negative effects from previous pricing strategies. Nion states, “They haven’t had a product in a few years. So, they’re finally going to have one.”

VI. RBC Capital Markets’ Stance & Concerns

RBC Capital Markets currently maintains a “hold” or neutral rating on Stellantis. While Nion acknowledges the large write-down wasn’t overly concerning, the low guidance for revenue growth (mid-single digits) coupled with low single-digit EBIT margins raises concerns. Specific anxieties include potential impacts from tariffs, foreign exchange fluctuations (FX), and demand for DRAM. Nion characterizes the situation as a “show-me story,” emphasizing the need for concrete evidence of improvement before considering a more positive investment outlook. As Nion succinctly puts it, “They got to show it to me.”

VII. Notable Quotes

• Tom Nion: “I think folks maybe got ahead of their skis post pandemic.” (Referring to overestimation of EV demand)
• Tom Nion: “They’re saying mid-single digit revenue growth, but only low single-digit EBIT margins. It does make me a little bit worried about tariffs, about FX, about DRAM, demand.” (Highlighting concerns about Stellantis’s financial guidance)
• Tom Nion: “They got to show it to me.” (Emphasizing the need for demonstrable improvement before revising the investment outlook)

Conclusion:

Stellantis’s recent stock decline stems primarily from a reassessment of its EV strategy and unexpectedly conservative financial guidance for 2026. While the company possesses strong liquidity, investor confidence hinges on its ability to demonstrate improved profitability and successfully launch new products, particularly the hybrid Jeep Cherokee. The situation requires careful monitoring, as the company navigates a shifting EV landscape and aims to revitalize its iconic brands. The market is adopting a “show-me” approach, awaiting concrete evidence of Stellantis’s ability to deliver on its revised strategy.