Sell Alert: it’s time to sell Stellantis after guidance cut
30th September 2024 |
I’ve come to the conclusion that we should sell out of Stellantis at a disappointing loss.
Earlier today shares in the multi-car brand giant fell as much as 14% in European trading after it slashed annual forecasts and warned it would burn through more cash than expected.
Stellantis blamed higher costs to overhaul its US business and Chinese competition on electric vehicles (EVs).
The company said it is now targeting no more than 330,000 units of dealer inventory by the end of the year, bringing forward that target from the first quarter of 2025 due to a planned normalisation of inventory levels in the US.
The company pointed to North American shipment declines of more than 200,000 vehicles in the second half of 2024, up from earlier guidance of a 100,000 decrease.
Stellantis also said it was planning on increasing discounts on 2024 and older models, as well as making productivity improvement initiatives that encompass both cost and capacity adjustments.
As such, the company said it sees adjusted operating profit margin at 5.5%-7% this year compared with earlier guidance for a double-digit percentage.
Stellantis said it was dropping expectations for positive free cash flow. It now expects to burn through up to almost $11.2 billion in cash this year.
This is extremely disappointing for a stock that reached an all-time high at nearly $30 on 25 March, less than two months after we recommended it.
The company still has much going for it, of course.
Just today it said China’s Leapmotor has started to take orders in Europe for a city car and an SUV.
Stellantis holds a 51% stake in its Leapmotor International joint venture and has exclusive rights to build, export and sell Leapmotor products outside China in the first such arrangement for a legacy Western automaker.
This should help the brand avoid European Union tariffs on imported Chinese EVs.
However, with momentum clearly against the stock, and with headwinds against most of the car industry, I think we should sell our position with a view to getting back in if and when the price stabilises.
Action to take: SELL Stellantis
Ticker: NYSE: STLA
Current price: $16.06
Entry price: $22.84
% gain/loss: -29.68%
James Allen
Co-editor, Southbank Growth Advantage
