Stellantis N.V. Q2 FY2022 Earnings Call

Hello and welcome to Stellantis First Half 2022 Results. I'll now hand over to our host, Andrea Bandinelli, Head of Investor Relations, to begin today's conference. Thank you.

Hello everyone joining us today as we discuss Stellantis' first half 2022 results. Earlier today, the presentation material for this call, as well as the related press release, was posted under the Investors section of the Stellantis Group website. Today, our call is hosted by Carlos Tavares, the company's Chief Executive Officer; and Richard Palmer, the company's Chief Financial Officer. After both Mr. Tavares and Mr. Palmer present, they will be available to answer questions. Before we begin, I want to point out that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the Safe Harbor statement included on Page 2 of today's presentation. And as customary, the call will be governed by that language. Now, I would like to hand over to Carlos Tavares, CEO of Stellantis.

Thank you. Good morning, good afternoon, and good evening to all of you. Welcome to this 2022 H1 Stellantis financial results announcement session. We know that you are busy people, and therefore, we value your time, and we thank you for your interest in Stellantis. Let's get started then. It is an understatement to say that the automotive industry has been operating in a chaotic environment for some years now. But we should say today that we are moving from a chaotic world to a fragmented, if not a wild world. In this context, the most important thing I would like to do this afternoon before we look at any single number is to express my sincere appreciation, my warm thanks to all employees of Stellantis. I would like to extend that appreciation to our union partners and our management team. The record results that we are presenting this afternoon represent their work and their success. Therefore, I would like to express to all of them, again, my warm congratulations and my warm thanks. They have done a stellar job in a very wild, fragmented and chaotic environment. This demonstrates that Stellantis is a resilient, all-weather, electrified tech automotive company. Now let's start with some numbers that we are going to comment on with Richard, our CFO. First of all, a record operating income margin of 14.1% with 5 regions posting double-digit margins, demonstrating that the full business footprint of the company is now sound and highly profitable. Generating EUR5.3 billion of positive industrial free cash flow, which includes no less than EUR3.1 billion of net cash synergies, indicating that we are well in advance on our committed plan in terms of delivering the synergies that were committed when we made the merger between FCA and PSA. More importantly, we are now demonstrating that our electrification strategy presented to you in July 2021 is delivering very strong results. Our BEV sales rate is now growing significantly, with a growth rate of nearly 50% year-over-year. This 50% BEV sales growth rate demonstrates that our electrification strategy is working. In Europe, we are now breathing down the necks of our most respected competitors in a head-on battle for the top spot in BEV sales in the European market. This shows that our products are competitive, and our technology is well appreciated by our customers. We are also the number 3 in the U.S. for LEV sales, and soon you will see the same success in the U.S. that we can demonstrate in the European market today. We lead the commercial vehicle market with a significant gap in market share in Europe at 33% and in Latin America at 30.7%. Notably, within our commercial vehicle sales, we have a 50% market share in the pure BEV sales. This again demonstrates the competitiveness of our technology and the acceptance of our BEV products by European customers. We are strengthening our lithium supply, as we understand the need to control our supply chain more deeply, learning from the disruptions we have experienced. We have increased our shareholding in Vulcan to ensure that our lithium supply is strengthened. We will continue to make strategic decisions on this matter, and you will know more about them very soon. Lastly, we have completed the Share Now acquisition that was finalized in July. We are now the number 1 mobility service provider in Europe with Free2move controlling Share Now. We are currently in the turnaround of this previously loss-making entity to continue being a strong leader with approximately 50% market share, aiming for profitability. These are some highlights I would like to share with you. Moving now to the regions, we will start with the most profitable region of Stellantis, which is North America. North America has achieved record profitability with an 18.1% AOI margin, comparable to our peers in North America. This illustrates a very high level of efficiency and effectiveness, and I would like to send my warm appreciation to our North America teammates for these outstanding results, which are combined with a market share increase. Profit is up, market share is up—a clear demonstration of value creation. A great job was done in North America with an increase in the average transaction price, the highest among our peers concerning rising net revenue. We have had strong results in LEV sales, ranking number 3 in the U.S., and the Grand Cherokee PHEV version will help us expand this performance across North America as we launch this new product. Additionally, we concluded that we would introduce in Canada the first applications of the STLA Large platform, happening from 2024. The STLA Large platform is one of our 4 BEV-dedicated platforms, engineered in North America, specifically in Urban Hills. Our engineers are doing a great job with this highly competitive platform to capture a strong position in the North American electrified market. That's for North America. Now let’s move to Europe. We are taking off with BEV sales, as I explained. Our market share in the LEV market is 19.2%, getting very close to our total market share in Europe, which is 21.2%. Our goal is to achieve an LEV market share above our total market share as soon as possible. Additionally, in terms of pure BEV sales, we are now among the leaders, competing closely with our number one competitor for the top position. We achieved this while improving profitability with an AOI margin of 10.4%, compared to last year’s margin of 9.2%. Our profitability in Europe has improved, and electrified sales are taking off with an increased market share of LEV sales at 19.2%. We have impressive examples that demonstrate competitiveness, appeal, and wide acceptance of our products. The Fiat 500 E is the number 1 BEV-selling car in Italy, and notably, it is also the number 1 BEV sales car in Germany, showcasing its competitiveness. Simultaneously, our electric version of the Peugeot 208 is also the number 1 in France, further demonstrating our EV technology's competitiveness. In the European market, we have 5 vehicles among the top 10 selling vehicles, reasserting the competitiveness of our brands and technology. Our models include the Peugeot 208, Opel Corsa, Citroen C3, Fiat Panda, and Fiat 500 within the top 10 selling models in Europe. We are continuously improving the technology we have developed, with plans to introduce hatchbacks and SUVs with a range exceeding 400 kilometers WLTP by the end of this year and into our showrooms at the beginning of next year. This continuous improvement will enhance our models' acceptance in future markets. Our global BEV sales are growing at a remarkable 50% rate, one of the best among peers, with European market performance highlighting our competitive technology. Moving from Europe to other regions, I want to highlight our very strong profitability across our overseas regions, starting with the Middle East and Africa. We have seen a strong improvement in profitability at 15.5% AOI margin, seeing a concurrent improvement in market share by 0.2 points with a leading position in Algeria, Egypt, French overseas territories, and Turkey. It’s important to recognize that profits up and market share up signifies value creation, with significant growth potential in this region. In South America, we maintain strong leadership in key markets like Argentina, Brazil, and Chile, with Stellantis leading the pack, and the Fiat brand is leading in profitability, with an AOI margin of 13.9%. Jeep ranks as the number 1 selling SUV brand in Brazil, and Fiat is the number 1 selling brand overall, achieving an impressive 23.5% market share in the region. We have delivered more profit in the first 6 months in South America than in the entire year of 2021—an amazing result. Congratulations to our Latin American teammates. Over in Asia, particularly in China and the Asia Pacific, we also see strong profitability at 13.4%. We have exciting new launches such as the Citroen C3 and Jeep Meridian model in India, which will leverage our operational footprint in this large market, positioning us to generate profitable growth in India. We are now shipping our Citroen C3 to dealerships, paving the way for our business development. In China, we had a binding MOU with our partner GAC, which could not be implemented, indicating a breach of trust. Consequently, we decided to unwind that joint venture, which was loss-making. This is our way to recover from that situation, shifting to a more asset-light strategy presented during our Dare Forward 2030 plan, focusing on profitable CBU sales. Regarding our brands, starting with Jeep, our global SUV brand, we see strong success with the deployment of 4xe PHEV technology. From early 2023, Jeep will transition to a fully electric line, starting in Europe and establishing itself as the number 1 electrified brand worldwide. Pricing remains favorable, and the Wrangler is still the number 1 selling PHEV in the U.S., demonstrating the competitiveness of the 4xe technology. The Grand Cherokee is performing well with significant global sales. We are also expanding the Gladiator's global reach to find growth opportunities in markets like Brazil, China, Japan, and South Africa. Great achievements from Jeep, one of the pillars of our profitability. Moving to our other American brands, Chrysler has become a strong number 2 selling PHEV in the U.S. Pricing power is robust. We have finalized the concept for the Chrysler brand's rebound, inspired by our Chrysler Airflow Graphite Concept, moving into the execution phase. Ram demonstrates strong success with the highest U.S. average transaction price for the RAM 1500. Additionally, we will introduce the ProMaster EV version to major customers like Amazon and prepare a fuel-cell version of this ProMaster EV for both U.S. and Europe—an opportunity for significant growth. Results from Ram are commendable; congratulations to the U.S. teams on that. As for Dodge, it continues to be a strong niche brand, achieving the best ever U.S. average transaction prices for Challenger and Charger. We are preparing for full electrification with innovations to excite fans of this brand in the near future. Moving on to upper mainstream brands, electrification is gaining momentum. Opel is achieving fantastic results, with the Opel Corsa being the number 1 selling car in Germany for the B-Segment and overall best selling car in the U.K. Overall, Opel's BEV sales are up 52%, showcasing the strength of our technology and sales teams. The new Astra has a strong order book, and we are ramping up production. Peugeot 208 is the number 1 selling vehicle in Europe, rewarding the Peugeot team for a significant achievement with an increase in market share in South America and strong pricing power. We recently unveiled the all-new 408, a model positioned between a sedan and a crossover for delivery in late 2022. Peugeot has the strongest model brand portfolio in Europe with significant growth potential and plans to lead in pure BEV sales. Turning to our core brands, Citroen shows improved market share in South America. Production of the new C3 has commenced in India and Brazil, focusing on providing affordable mobility for middle-class consumers. The electric version of the Citroen C4 is proving its worth as the number 3 selling C-Hatch BEV in Europe. Regarding Fiat, it is an exciting brand, a market leader in Brazil, Italy, Turkey, and throughout Latin America. The Fiat 500 E is the number 1 BEV selling car in Germany and Italy, with further potential across Europe. We plan to introduce two new Fiat products next year. Our product planning is underway, ensuring we provide high-quality affordable vehicles. Conclusively, in commercial vehicles, we lead with a 32.2% market share in Europe and a 30.7% market share in South America. In BEV sales, we have, nearly 50% market share in Europe, dominating the BEV LCV market regionally. The Ram brand is achieving record sales outside North America, enhancing growth opportunities in various markets. Ram's success is matched by a partnership with Engie, a French energy company, in selling fuel-cell vans paired with charging stations, showcasing the viability of fuel-cell LCV fleets. We are also accelerating our synergies, integrating Fiat LCVs with Stellantis platforms to enhance profits and functionality. Shifting to premium brands, we observe significant potential impact in increasing profitable net revenues from premium brands relative to the overall company share. I want to emphasize that even before we launched the new Tonale, Alfa Romeo’s turnaround for profitability was achieved. We now yield per unit margins akin to those expected from a premium brand, and despite previous challenges, we maintain growth potential by electrifying all Alfa Romeo models moving forward. Lancia is preparing for its future, maintaining strong sales performance with the Ypsilon, the number 1 selling vehicle in Italy for the B segment, while DS Automobiles enjoys market share growth and total profitability improvement. Lastly, Maserati has demonstrated increased pricing power with H1 margins rising to 6.6%, poised to achieve a target between 15% and 20% AOI margin. The market share continues to rise, except in China where lockdowns have impacted shipment. The quality of new models, including the MC 20 Cielo, and Grecale contributes significantly to Maserati's profitability. We are re-engaging Maserati with its motorsports roots as well, including participating in racing championships. For our affiliates, we anticipate strong growth and profitability, aiming for market leadership in leasing and expanding our pre-owned vehicle brand Spoticar. Regarding our electrification strategy, I must remind you that our global BEV sales were up nearly 50% in H1. Stellantis remains on track with our five Gigafactories in Europe and North America essential for fulfilling our electrification strategies. We’ve committed to producing 48 BEV models by the end of 2024, about half of our total model portfolio. We have set a precedent in quality manufacturing electric motors and managing our supply of raw materials carefully moving forward. Now, I’d like to hand over to our CFO, Richard Palmer, for detailed financial results.

Thank you very much, Carlos. Good day to everybody. Moving forward, as usual, we are comparing the '22 numbers to '21 pro forma due to the merger occurring in January of last year. This should be the penultimate time we have to mention that. On Page 18, as Carlos mentioned, very strong operating performance with a 14.1% margin, despite consolidated shipments being down 7% for the half, split between 12% down in Q1 and 3% down in Q2, indicating some improvement in the trend. As a result, our net revenues for the half, despite the minus 7% of shipments, increased by 17% to EUR88 billion. The commercial and mix performance on revenues drove adjusted operating income up by 44%. This also translated into a strong performance in industrial free cash flows, delivering a plus EUR5.3 billion, increasing our industrial available liquidity to just short of EUR60 billion, despite repaying a EUR6.3 billion facility for Intesa in January and paying our dividend. Moving to Page 19, you can see the rest of the P&L. From the 44% growth in AOI, we see a 37% growth in operating income after unusual charges. We had 3 items amounting to EUR2.1 billion in charges for the half, which was up from EUR1.1 billion last year. They include restructuring charges amounting to EUR0.8 billion and campaign costs related to the extension of Takata airbags, leading to EUR0.6 billion. The adjustments to CAFE penalty rates for our U.S. business following new regulations finalized in H1 totaled EUR0.7 billion. Our net financial expenses increased by EUR200 million, driven by the macro environment due to hyperinflation in Turkey and hedging and devaluation costs from Argentina. Despite the robust performance from the Fincos, we faced negative impacts of approximately EUR0.3 billion due to impairment on our GAC-Stellantis JV. Lastly, our tax rate slightly decreased from 24% to 20% due to the non-repeat of deferred tax asset adjustments resulting from the merger in H1. Consequently, our net profit for H1 reached EUR8 billion, up 34% compared to last year. Moving to Page 20, you can see a detailed walkthrough from net revenues '21 to '22, showcasing a 17% increase to EUR88 billion. While we saw a volume and market mix decreasing by EUR2 billion due to the 7% drop in shipments, this was more than offset by EUR8.8 billion of positive impact from net price, content, and vehicle line mix, accounting for about 12% of revenues, driven further by positive FX translations, specifically the strengthening of the U.S. dollar against the euro in Q2, amounting to EUR4.6 million. Additional items mainly stem from reduced sales with buybacks in our European region, totaling EUR1.3 billion. The impressive revenue performance resulted in a 44% improvement in AOI to 14.1%, driven by increases in revenue lines as seen in EUR5.8 billion of vehicle net mix and content, alongside EUR0.7 billion from vehicle line mix, completely offsetting negative industrial cost impacts, primarily due to raw material inflation affecting EUR3.8 billion. However, we saw a positive impact in SG&A due to synergies for a positive amount of EUR0.5 billion. This year, our sales and shipments remained stable, ensuring that we do not repeat last year's reduction in dealer stock, contributing positively year-over-year. Moving on to Page 22 to discuss regions. Starting with North America, we recorded margins of 18.1%, accounting for around 60% of our group AOI. Shipments increased by 10% in North America, unimpacted by semiconductor constraints, benefiting from new launches like the Wagoneer, Grand Wagoneer, and refreshes of Jeep Compass and Grand Cherokee L, resulting in this performance. This boost in demand drove our net revenues up 31% and AOI to EUR7.7 billion, an increase of 47%, consistent with the same story across the group—strong price and mix offsets by raw material impacts. As seen in previous statements, the change in dealer stock is markedly affecting North America. On Page 23, in Europe, we achieved double-digit margins with a 10.4% increase, despite shipments dropping 18% due to unfilled semiconductor orders, resulting in a decrease of 300,000 units from last year. While revenues barely rose by 2%, it was positive pricing and mix contributing approximately 8% of revenues, mitigating raw material impacts. We noted positive synergies in SG&A, yielding robust margins driven by sales performance. Turning to the Middle East and Africa on Page 24, we see a remarkable fiscal improvement, with AOI doubling, reaching EUR472 million. Here, shipments remained flat, supplemented instead by demand for new vehicles like the Grand Cherokee L, Citroen C4, Opel Mokka, Peugeot 3008 and 208, causing a 19% increase in revenue despite sluggish shipments. These figures remain resilient despite the continued challenges presented by semiconductor orders sourced from Europe. In South America, we marked a threefold increase in H1 performance going from EUR326 million to over EUR1 billion this year. Despite shipping down by 5%, a continued strong demand for new products like the Fiat Pulse and Peugeot 208, and Jeep Compass refresh, drove revenue growth by 47%, totaling EUR7.2 billion. Overall, raw material inflation drove negative industrial costs of nearly EUR0.5 billion but overall growth remained strong. On the final page concerning China and Asia Pacific, we experienced setbacks amidst the lockdowns that hindered shipments. However, revenues surged by 14%, supported by strong pricing and better mix, particularly in India and Asia Pacific, securing an adjusted operating margin of 13.4% for the half. Maserati also gained, improving margins to 6.6% despite slight decreases in shipments due to challenges in China. The profitability trajectory suggests robust potential resilience moving forward. Our industrial free cash flow increased significantly—up to EUR6.5 billion compared to last year, buoyed by stellar operating performance, reaching 17.6% margins, which is over two points higher than last year. This improvement feeds into lower CapEx and R&D figures at EUR4.4 billion—EUR900 million lower year-over-year. Additionally, driven by synergies reaching EUR3.1 billion, approximately EUR2 billion of which relates directly to lower CapEx and R&D. Working capital trends were negative due to lower factoring, elevated inventories due to raw material price inflation, and safety stock levels to ensure production continuity. With EUR400 million in negative restructuring cash for the half, financial charges and taxes reached EUR2 billion higher than last year by EUR900 million, stemming mainly from the timing of tax payments. Moving to Page 28, our dealer inventory was at 704,000 units at the end of June, reflecting a slight rise from 695,000 at the end of December, indicating minimal restocking throughout the half. The increase primarily attributes to North America, up by 20,000 units, but decreases observed in Europe offset this gain. On Page 29, to discuss the industry outlook: we revised our North America and European forecasts based on H1 numbers. North America saw a decline of 17% for H1, where H1 last year performed better than the run rate for H2 last year. We anticipate a stable H2, projecting a total annual decline of about 8%, a crucial element of which involves semiconductor availability. We foresee a comparable situation in large Europe, where H1 was down 20%, with EU30 down 15%, suggesting a stable second half compared to the first. In light of our strong H1 performance regarding AOI margins and industrial free cash flows, we affirm our guidance for the full year. With that, I'll hand back to Carlos. Thank you.

Thank you, Richard. As we finalize the presentation, let me share some takeaways. First, Stellantis is a resilient, all-weather company now focused on EV leadership. This is paramount. We have three pillars to support this. First on any relevant metric, our long-term strategic plan, Dare Forward 2030, seems appropriately relevant in the current operating environment. We are entirely focused on executing this plan. Secondly, our company is profitable, sustainable, and has committed to maintaining a breakeven point below 50%. Our H1 numbers reflect a 40% breakeven point, signifying our solid position to sustain any challenging crises in the near future. We are gaining momentum in our BEV sales business and now find ourselves among the leaders in Europe with notable models performing well across various markets. The U.S. represents a significant opportunity for developing our EV technologies. Looking ahead, we anticipate key electrification events reinforcing our momentum. With 20 EVs currently on sale and plans to have 48 by the end of '24, we are well on track. Our robust growth sends a strong signal about our electrification strategy yielding results. Importantly, let's not overlook our Gigafactories—three in Europe and two in North America—confirming our commitment to bolstering our electrification strategy. Each day brings us closer to fulfilling our strategic blueprint, and as we speak, Stellantis is moving forward efficiently and effectively through challenges. I'll now hand it over to questions from the audience.

Our first question comes from Patrick Hummel from UBS.

My first question goes to Richard, very simply for the short term. A double-digit margin after having achieved 14% in the first half doesn't seem very challenging. I would appreciate it if you can just give an update on the puts and takes in the second half of the year? I remember from the last earnings call or for the Q1 revenues call, you said basically you think the net of pricing versus commodities is going to remain a positive driver throughout the year. So I'm wondering whether that means that the H2 margin should be at least roughly in line with H1? And my second question probably goes to Carlos. If I do extrapolate the H1 performance, it basically means your stock trades on 2x earnings. So basically, what this is telling us is nobody believes in the sustainability of the profits that Stellantis currently generates. And I guess the worry is less on the volume side; the concern is that pricing would just start to collapse from going from undersupply to oversupply with all the negative implications on margins. So I'm just curious in a scenario where the macro environment does get worse in North America and Europe next year, how do you think about profitability? Would you confirm to us that even in a recession environment, this company will generate a double-digit margin also in 2023? Or any other additional color you may have regarding the outlook for next year?

Exciting questions. As your second question is quite challenging, I will leave the first one to Richard, allowing me more time to answer your challenging question later. Richard, please.

Patrick, look, I mean, honestly, the H1 performance was clearly very strong. Absent any degradation in trading conditions compared to where we are today, which obviously includes a lot of volatility in the business and in the macro, I don’t see any particular reason why our margins should deteriorate in H2. Everyone is working very hard within the business to execute on the top line while striving to continue enhancing our cost structure efficiency. With many moving parts, the team’s diligence should yield a good chance of maintaining a similar performance in H2.

Thank you, Richard. Your second question is quite important as well. What your question demonstrates is that there exists a significant opportunity for investors to recognize that currently Stellantis is significantly undervalued, and that is absolutely correct. Given what we have in our plan, our execution capabilities, our focus, and the robust support from our employees following this merger, it's fair to state that our market cap is undervalued. Investors seeking opportunities in a resilient all-weather company that is showcasing strong competitiveness in the electrification journey may find potential gains noteworthy. Our commitment to transparent strategies and executing on operations has been demonstrated, especially in challenging situations. The more demanding the conditions we face, the better we express our competitive execution capacity against our peers. Ultimately, it comes down to your belief in the company's capability and whether you choose to invest or not. What we legitimately offer is agility, focus, and effective execution backed by a sound strategy that has been generating results. Our H1 performance illustrates our ability to derive value from a tumultuous market landscape. Registering over EUR1 billion of positive free cash flow with AoI margins north of 14%, that is quite unique in the automotive industry today. The figures speak for themselves, showing our potential for further financial strength moving forward.

Our next question comes from the line of Martino De Ambroggi from Equita.

My first question is on free cash flow. I don't know if you agree with me, but net working capital was better than expected. So if you could elaborate on this and explain if there is a significant impact of factoring? And also, CapEx was lower than what I had expected. So just to understand what could be the projection? I understand that EUR900 million of synergies, but what's the expectation for the full year? Additionally, connecting to the previous question. You have a huge amount of cash, and you recognize you're undervalued. Why not buy back some shares, given the buyback is a part of your business plan and it seems like the right moment? And I have a follow-up on another issue.

You have three questions here. I will leave the working capital question for Richard to answer. I will address the CapEx and the first element regarding buyback, then back to Richard for more details. On the CapEx, we continuously affirm what we articulated in the Dare Forward plan, maintaining a 30% efficiency and effectiveness advantage over our competitors in our expenditures. This has been reflected in our results consistently. Our strategy does not rely on showcasing significant CapEx figures in the media; instead, we seek to manage our resources wisely to ensure your investment is handled efficiently and effectively. On buyback, we previously disclosed a potential 5% capital buyback tied to our strategy. We've communicated concerning potential collaborations with Dongfeng Motors; we will evaluate this as opportunities arise. For more details on working capital and buyback, I'll turn it over to Richard. Richard, please.

Thank you, Carlos. On working capital, I would emphasize that we recorded a negative EUR3.2 billion in this regard, so I don't consider it a particularly strong performance. It's comparable to last year. Within that figure, factoring was lower partly due to rising costs associated with it, and we're also aiming to normalize working capital to reduce factoring levels moderately over time, as we've mentioned in our Dare Forward plan. Additionally, higher inventories result from inflation's impact on costs and fluctuations in safety stock levels driven by supply chain volatility. I don’t see remarkable positive developments in net working capital. Looking ahead to the second half, you might expect slight improvements, but that largely hinges on shipment conditions. With respect to the buyback, as Carlos noted, Dongfeng owns 3.1% of our shares, so we’re working with them to ensure any future sales don’t affect our stock value significantly. That’s a positive step forward, and we will monitor the rest of the 5% we mentioned in the Dare Forward plan.

Thank you, Richard. Let’s proceed to the next question.

Next question comes from Thomas Besson from Kepler Cheuvreux.

I have three questions, please. Firstly, I would like to revisit Carlos’s point regarding your currently undervalued share prices. You mentioned breakeven today is at 40% of your current volumes. Could you elaborate on how margins might impact if volumes decline in various regions? The market appears concerned that North American margins, currently stellar, could trend towards single digits within a few years. That is my first question. Secondly, could you clarify the distinction between P&L synergies versus cash synergies? I gather you mentioned EUR3.1 billion in cash synergies; how much resembles P&L synergies? Would it be accurate to anticipate continued improvement in 18 months as you ramp up operations in Europe and Latin America? Finally, regarding buybacks, would it be fair to say you would attempt to consolidate shares when making purchases, whether from Dongfeng or another entity? Given your EUR60 billion liquidity, doesn't a 5% buyback seem rather conservative, especially against the backdrop of the undervaluation you indicated? I believe it would be a powerful message to the investors.

Thanks for those excellent questions. I’ll begin discussing margins in the U.S. It’s crucial to note that if our North American margins sit at a historic 18.1%, relative to our American peers, it signifies a strong competitive position. If North American margins are at risk, we should question the state of our competitors. In examining our margins, awareness of industry context is important; our current standing is comparatively robust. Concerning potential downturns, while external factors may impact all, we’re currently positioned favorably. Undoubtedly, we will earnestly work to safeguard those margins. We don't foresee a credible scenario where standalone circumstances would drop us below double digits in 2024. The 40% breakeven point offers robust protection for sustained profitability, allowing us to navigate challenging times. On the distinction between cash and P&L synergies, Richard can provide detailed insight, but I would say that our primarily long-term strategy and careful execution foster the potential for consistent revenue generation across models. Our ability to achieve significant synergies operates through an understanding of how best to execute operational efficiencies, which could yield favorable outcomes in varying market conditions over time. On the buyback scenario, ensuring a stable social environment is indeed a priority. With rising inflation and emerging societal pressures, we aim to maintain a robust operational foundation and work collectively with stakeholders. Additionally, being cautious with investor impacts is a consideration. Richard, would you like to elaborate further?

Certainly. In summary, the EUR3.1 billion cash synergies translate into approximately EUR1.1 billion of P&L synergies as the other EUR2 billion are capitalized. The EUR1.1 billion breakdown is roughly 50% in industrial costs and 50% in SG&A. The expectation remains for strong performance given our plans to ramp up across European and LatAm platforms.

A clear answer; thank you, Richard. Next question, please.

Next question comes from Michael Foundoukidis from ODDO.

Two follow-ups, please. First, you described your company as all-weather; you underscored the breakeven point, now lower than 40%. You have robust order books and more synergies to come. Based on this, what could realistically drive margins back to single-digit next year or in 2024, even amid adverse macroeconomic conditions in either Europe or the U.S.? Secondly, regarding inflation, what impact do you foresee regarding wages, probably in 2023? And how would you address that potentially?

Thank you for these insightful questions. In the context of our Dare Forward 2030 plan, we've committed to maintaining double-digit AOI margins and aim to double our net revenue from EUR150 billion to EUR300 billion by 2030. The positive trajectory we observed during H1 aligns well with these plans. The team's steadfast commitment to our strategic objectives ensures we continue executing effectively and efficiently while navigating fluctuations in our environment. Multiple dynamics could arise that are challenging, and while I wouldn't define what could happen during market volatility, I am confident in our ability to remain on the right track. As far as state wage impacts go, I envision a gradual alignment process where our variable performance bonuses link closely with our profit growth. This alignment cultivates a shared interest with employees supporting our strategic goals. It’s imperative during higher inflation periods to keep incentives aligned with performance, ensuring social stability within the company while adapting compensation to the market climate. Our transparent approach helps reinforce these principles across all levels.

Next question comes from Charles Coldicott from Redburn.

I've got two questions, please. Firstly, on inventory, new vehicle inventories are slightly up to 850,000 units. Do you still think an inventory of around 1 million units is the appropriate level for Stellantis? Given the economic climate, do you anticipate keeping it lower than that for possibly the next few years? Secondly, regarding the China strategy; with the recent changes in your joint venture for Jeep, how does this impact your 2030 goal of EUR20 billion of revenue and an 8% margin in China? Is that still achievable and, more broadly, do you think it's important for Stellantis to maintain a presence in China?

Excellent questions. I would like to conclude this Q&A session with your question about inventory levels, as I respect my peers from Volkswagen, understood their earnings session is about to begin. To address your inquiries, yes, we see a guideline for internal management regarding inventory, deeming the 1-million-unit mark crucial because that indicates effective supply chain dynamics without shortages. We prefer to operate within the range of 1-1.2 million units. A higher inventory leads to higher marketing costs and vulnerability during market downturns. On the concerning situation with GAC, I have observed the increasing tenderness of political influences over business dealings in China over the last five years. The binding MOU with GAC not materializing led to the decision to unwind our joint venture with them, resulting in cleaner financials. However, I don’t think this will drastically impact the EUR20 billion revenue goal. Our business focus on profitable CBU sales appears promising, alleviating potential concerns around achieving solid growth in these revenue projections amid our transformations and shifts. Thank you for the proactive inquiries today; I find them to be engaging and forward-thinking. Let's proceed with our next topic.