Stellantis N.V. Q2 FY2023 Earnings Call

Hello and welcome to the Stellantis First Half 2023 Results. For your information this conference is being recorded. I’d now like to turn the call over to your host, Mr. Ed Ditmire, Head of Investor Relations to begin today’s conference. Please go ahead.

Hello everyone for joining us today as we review Stellantis’ first half 2023 results. Earlier today, the presentation materials for this call as well as the related press release were posted under the Investor Relations section of the Stellantis Group website. Today, our call is hosted by Carlos Tavares, the company’s Chief Executive Officer and Natalie Knight, the company’s Chief Financial Officer. After both Mr. Tavares and Ms. Knight 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 including on Page 2 of today’s presentation. As customary, the call will be governed by Dutch language. Now, I would like to hand over the call to Carlos Tavares, CEO of Stellantis.

Good morning, good afternoon. We are pleased to welcome you to this session discussing Stellantis' 2023 H1 financial results. We appreciate your time and interest in our company. H1 2023 was an exciting time for Stellantis as we achieved remarkable growth across key financial metrics, including net revenues, adjusted operating income, net profit, and industrial free cash flow. Specifically, net revenues increased by 12%, operating income rose by 11%, net profit surged by 37%, and industrial free cash flow grew by 63%. I want to express my gratitude to our employees for their dedication, resilience, and expertise, which have been critical in overcoming operational challenges. I would also like to thank my management team for their alignment and effectiveness in executing our Dare Forward 2030 strategic plan, which is clearly yielding results. We are witnessing significant growth, with a €14 billion adjusted operating income and an impressive AOI margin of 14.4%. Additionally, our free cash flow of €8.7 billion for the first half reflects the company's operational efficiency. We are not just increasing revenues; we are also strategically preparing for the future. Our BEV sales rose by 24% year-over-year, while LEV sales increased by 28%, driven primarily by growth in the U.S. market. We continue to lead in the light commercial vehicle segment, holding a 30.9% share in Europe and 26.8% in North America, with a remarkable 43% BEV market share in European light commercial vehicles. Moreover, we are advancing our Gigafactory initiatives, with six Gigafactories in progress worldwide to meet the 400 Gigawatt hour capacity target by 2030. The first was inaugurated in May in France, created from our joint venture with Mercedes and TotalEnergies. We are excited to present the first STLA Medium Platform designed specifically for BEVs, featuring impressive performance metrics, including a range of 700 kilometers (435 miles) and energy efficiency below 14 kilowatt hours per 100 kilometers. In North America, we achieved a record profit of €8 billion, even as our margin dipped slightly from 18.1% to 17.5%. Our market share has decreased slightly to 10%, facing some operational challenges mainly related to our trim mix and logistics. We are launching our BEV offensive in the U.S. this year, with noticeable growth in BEV sales already. By 2024, we expect to have eight BEV models, including the Dodge Charger Daytona and the Ram 1500 Rev. The improvement in product quality has also been evident, with Stellantis brands securing the top three positions in the J.D. Power 2023 Quality Study. Furthermore, in Europe, we recorded an adjusted operating income increase to €3.7 billion, with an AOI margin improvement to 10.7%. Our market share fell slightly to 19%, but we are addressing operational challenges and expect our logistics issues to be largely resolved. We are excited to introduce new products like the Citroën Ë-C3, set to launch in Europe at an attractive price below €25,000, catering to middle-class customers. This is part of our strategy to respond assertively to market competition. In South America, we hold the position of leader with Fiat and have improved our AOI margin to 14.2%. The Middle East and Africa have become our fastest-growing and most profitable region, with a 25.9% AOI margin. We're committed to expanding our capacity in Algeria, aiming for significant growth in this region. In Asia, we are experiencing profit growth while advancing our online sales strategy. Maserati is seeing a substantial year-over-year growth of 42%, with profitability improving from 6% to 9%. Alfa Romeo has also made a remarkable turnaround, with a 60% increase in sales, largely driven by the success of the Tonale. Jeep is poised for success with the Jeep Avenger, and the Dodge Hornet is well-received. Finally, regarding our UAW negotiations, we are focused on protecting our employees' bonuses while ensuring competitiveness for sustained profitability. Negotiations are in progress to achieve a mutually beneficial outcome. Overall, we are confident that our Dare Forward 2030 plan is on the right path, positioning us to achieve ambitious goals by 2030, including a focus on profitability, revenue growth, and carbon neutrality by 2038. I will now pass the floor to Natalie for a deeper dive into our results. Thank you.

Thanks very much, Carlos and welcome, everyone. Let me start by saying how excited I am to join Stellantis. I see it as my job to help execute, accelerate, and communicate our bold strategic plan, Dare Forward 2030. I'm truly convinced that at Stellantis we have the resources, the culture, the drive to lead as a tech-enabled mobility provider and I'm looking forward to working with Carlos and the whole Stellantis team as we realize this fantastic opportunity. So let me start with the numbers. And on Chart 17, you will see many of the key financial highlights here that have been discussed by Carlos earlier, but now I'd like to go through them together holistically. Stellantis entered our third year determined to build on the recent momentum and we have definitely done just that in the first half, with the group posting strong top line growth while maintaining industry-leading profitability and dramatically improving our cash generation. Net revenues grew at double-digit rates, up 12% to €98 billion, most of which was driven by a 9% year-over-year increase in consolidated shipments to 3.2 million units. The adjusted operating income margin of 14.4% was within 10 basis points of last year's record high level and all regions reported double-digit margins. Finally, and as a result of this strong performance, our industrial free cash flows increased 63% to €8.7 billion. So now that we've covered the high-level metrics, let's look next at the rest of the P&L on Chart 18. Here, I'll highlight two factors that when compounded with our strong core operating performance helped deliver that record net profit of €10.9 billion, and contributed to our 37% year-over-year increase. The first factor is the non-recurrence of three big unusual charges in 2022, the period that we didn't need to repeat this year. And those related to the cafe penalty rate adjustment for the model year 2019 to 2021, the Takata airbag recall campaign, and the impairment of our equity and shareholder loans that we had outstanding with our JV GAC in China. Second, our net financial income improved by €500 million due to higher interest earned on the strong net cash position. So let's move now to our top line growth and look at that in more detail. With 12% net revenue growth, we are again ahead of the trajectory that our Dare Forward 2030 revenue target of $300 billion implies thanks to two key drivers. The first, volume and mix was largely driven by a growth in shipments, including our deliberate efforts to normalize our inventories. I'll note here that growth in shipments, while strong, could have been even higher if it had not been for share declines in North America, due in part to certain model transitions and product portfolio rationalization as well as delivery logistics challenges that we had in Europe, which have now largely been resolved. We expect further improvement in both of these areas moving forward. The second lever I'd like to speak about was net pricing, and this was largely a function of carryover 2022 actions, which contributed €4.8 billion or 5% to net revenues with all segments delivering year-over-year. Let's now turn to our adjusted operating income walk and the drivers of our strong €14.1 billion AOI in the first half. AOI grew by 11% year-over-year to a new six-month record with pricing being the key driver and adding €4.8 billion. This effect, combined with the positive volume impact, allowed us to offset headwinds such as mix normalization resulting from diminished semiconductor constraints, raw material pricing, which was higher due to carryover effects of H2 2022 increases, and negative FX impacts mainly coming from the Turkish lira devaluation. We can now move on to the segment performance, starting with North America on Chart 21. Here, you see that performance in our largest region underscores what I just mentioned at a group level, which is our ability to consistently deliver high margins in very dynamic markets. Indeed, our teams continue to grow shipments in H1 without compromising our ability to generate quality income through strong pricing, which continued to be our biggest driver of AOI growth. Mix impacts were moderately negative in the region, reflecting actions to meet pent-up fleet customer demand as well as lower trim and content-level choices more generally. Let's now move over to enlarged Europe and here, what we see is that during the first half, AOI margin grew 40 basis points in the region to 10.7%. Positive volumes, net pricing improvement, and purchasing synergies were the main drivers. One of the key dynamics in the enlarged European region has been our efforts to relieve bottlenecks, the delivery, and the delivery logistics of our finished products. Here, we realized significant improvements compared to the second half of 2022, improving our daily average deliveries and ending H1 with an 80,000 unit increase in vehicles, physically at dealers compared to the end of 2022. Now let's talk about Middle East and Africa, the region that delivered our highest margin and revenue growth in the period. This extraordinary performance builds on recent momentum, making clear the increasing role this region will play in the group's broader growth. The AOI in the first half more than doubled year-over-year to €1.2 billion and already exceeds 2022's full year figure, thanks in part to an AOI margin that expanded to 25.9%. This profitability level was achieved, thanks to our 51% increase in consolidated shipments as our particularly high market share in Turkey positioned us for strong benefits from the country's robust volumes. Net pricing gains were also healthy, more than offsetting the devaluation of the Turkish lira. As we move on to Chart 24, let's talk about South America. In this region, where our market share is the highest in the group, we continue to outpace both the industry in sales and profitability. Net pricing and shipping volumes gains more than offset negative mix and industrial expense dynamics to help us deliver a 14.2% AOI margin, a 30 basis point improvement year-over-year. So to conclude our segment review on Chart 25, first, looking at China, India and Asia Pacific. Shipments here decreased by 6%, mainly reflecting our decision last year to switch to a more direct distribution strategy in China and the temporary headwind that this has caused due to the related sell-down of dealer stock. We nonetheless have been able to achieve an above-average AOI margin of 14.8% in the region. Looking next at Maserati shipments here. We're up 5,000 units in the first half, highlighted by the ramping of production of the Grecale SUV as well as the introduction of the Grand Turismo. Profitability-wise, the 9.2% AOI margin achieved in the first six months of 2023 showed significant year-over-year expansion. This should improve further in the second half of the year, and we are on track to deliver a sustainable 15% margin beginning in 2024. After having reviewed the segments, let's now talk about industrial free cash flows and how we've done here in the first half period, which was another record. Starting in the prior year period where we already had €5.3 billion, you see the increases in industrial AOI and D&A, a proxy for adjusted EBITDA and the strength of operating performance. CAPEX, capitalized R&D, and other investments were almost €600 million higher year-over-year, and we expect these investments to increase further in the second half. The other big driver of cash flow improvement in the period is working capital and that includes sales incentive provision changes, where a net increase represented a headwind to free cash flow generation in the absolute, but that headwind decreased by €1.7 billion year-over-year. Now we'll move to Chart 27, where we look at inventories. And here, you can see on the left-hand side of the chart, inventories have normalized when we look at over the last 12 months, comparing those periods to the last three years. After having been depleted in connection with the unfilled semiconductor orders in 2021, we were able to replenish stock levels over the last 12 months. On the right-hand side of the chart, what you see is that a little more detail over the last quarters that we've been able to take our inventories to basically a stabilized level, and they've increased very marginally over the prior quarter. So for my final chart, we'll talk about the outlook for the remainder of the year. The strong growth and performance that we have presented here today has only strengthened our confidence moving forward. We've raised our industry sales outlook from 5% to 7% in enlarged Europe, as well as in the Middle East and Africa, following the strength of those markets in the first half. I'd also like to share some important elements we have in mind when it comes to considering revenue and AOI development in the second half of 2023. We see positive impacts year-over-year coming from higher shipments, cost synergies, and lower logistic headwinds. On the other hand, mix normalization is likely to continue, inflationary factors will continue to be felt in areas outside of raw materials, and union contract negotiations bring some inherent risks as they would in any region. So I'm happy to conclude my remarks today by saying that we are confirming our full year guidance of double-digit AOI margin and positive industrial free cash flows. Thanks for your attention, and I'll now hand it back to Carlos.

Thank you, Natalie, for helping us understand the important numbers. Before we move to the Q&A, I want to share a couple of thoughts. We see that when we consider the opportunities mentioned by Natalie and myself, as well as the areas where we did not perform well in the first half, there's enough work to be done in the second half to protect our results and earnings from challenges. We believe there are sufficient tasks to continue addressing any headwinds, as mentioned by Natalie. Therefore, we are confident about the full year of 2023. Additionally, we are excited about accelerating the execution of our Dare Forward strategy. Notably, we've made progress on electrification, secured raw material supply deals, developed Gigafactories, and introduced new products in the U.S. Our sales growth rate is already impressive, but we believe it can improve even further. There is a sense of enthusiasm within our company and leadership team to enhance the execution of our strategic plan. Why are we so enthusiastic? Because we are seeing concrete advancements in the market and the successful execution of our plan is leading to record results. This brings me to my final point: we have a high level of confidence in the success of Dare Forward 2030. We believe this plan is the right approach for the company in today's environment, and we are well-positioned to seize the right business opportunities. Moreover, many accretive businesses are currently progressing as planned, which is promising for all of us. With the fresh perspective of Natalie and the energy and leadership of our team, I am confident we will deliver impressive results in the future. Thank you. Now, let's move to the Q&A. We are ready to listen to you.

Our first question is from Michael Jacks of Bank of America. Please go ahead. Your line is open.

Hi, good morning, good afternoon Carlos and Natalie. Thanks for taking my questions and congrats on a great set of numbers. I was hoping to ask two questions, but I will limit myself to one, in which case, I'll focus on vehicle pricing, which made a strong positive contribution in Q2, again, at a group level, but there is some divergence at a regional level between the U.S., which saw a lower tailwind in Q2 in Europe, which benefited from a higher impact. How do you expect the pricing environment in general to evolve in these two regions in the second half of this year and perhaps even beyond that into 2024 and against that backdrop, what is Stellantis' pricing strategy for that environment? Thank you.

That's a crucial question, and I appreciate you bringing it up. Many of our team members likely share the same curiosity. Let's delve into it. First, it's important to note that the pricing landscape differs between the U.S. and Europe, with the U.S. facing stronger pressures. We don't aim to freeze our pricing; instead, we believe in respecting our company's value creation process by being among the highest-priced options in each segment we operate in. Our strategy regarding pricing power isn't about stalling prices but about extracting fair value from the market, especially when our achievements, like our excellent J.D. Power results, are recognized. It's also about ensuring that our efforts towards producing high-quality, appealing vehicles translate into appropriate pricing. We're not looking to keep prices static; we want to ensure we're competitive in each segment and market. We've seen significant growth in the first half of the year, with shipments up 9% and revenues up 12%, alongside a solid OEM margin of 14.4%, which is among the best in the industry. However, we acknowledge that we didn't execute flawlessly in Europe regarding logistics and in the U.S. with some production plans and market fit for our trim options. There's definitely room for improvement to capture more market share. The pricing pressure is indeed higher in the U.S., but we've observed that much of our pricing strategies established during the pre-COVID period have proven effective. While adjustments may be needed, overall, pricing is stable, which benefits both the industry and Stellantis. To provide our sales and marketing teams with more flexibility to improve market share, we aim to continue reducing production costs, which will allow for better margins per unit. We’ll then reinvest some of these savings back into sales and marketing efforts to help seize greater share of the market. Our approach remains dynamic; we want to capitalize on the value we create. In the U.S., we believe our improvements in appeal and quality, as evidenced by J.D. Power survey results, will help us realize that value. In Europe, we are witnessing a strong demand for cars. The market responds positively to our marketing efforts, demonstrating a healthy order book, which gives us confidence for the second half of the year. As with the U.S., any necessary adjustments will be made with a focus on balancing market share and profitability. With new products on the way, we see significant opportunities ahead. Over the last three years, we have maintained a strong product appeal, which has resulted in demand and pricing power due to the emotional connection our vehicles create. That summarizes our pricing strategy.

It is great color. Thank you very much.

Thank you Mr. Jacks. Our next question is coming from Thomas Besson calling from Kepler Cheuvreux. Please go ahead.

Thank you very much. I'll ask one question as well, please. Can you talk about the increased merger synergy benefits at operating level where we are going to see them, when is it reasonable to speak to think that this is over the next 18 to 24 months that we should see the bulk of that?

Thank you, Thomas. Well, synergies are growing, and they are growing to a point where I don't want to continue to communicate to you synergy numbers up to a point where it is going to be difficult for my teams to imagine what a stand-alone position would be. So I think we'll be talking to you about synergies this year and then most probably we'll stop talking about that. But they are growing, and I'm sure that Natalie is eager to give you a little bit more details on this matter.

I believe we have accomplished something significant in the first half of this year. Last year, we generated about €3.1 billion in the same period, whereas this year we've reached approximately €4 billion. I see no reason why we can't maintain a similar performance in the second half. Additionally, I want to address some questions we've received about the sources of this growth. About €2.4 billion can be attributed to our income statement, primarily from our purchasing side, but also through reduced headcount. We've also made adjustments in sales incentives and marketing costs which contributed to our results. Interestingly, a significant part of these synergies has come from our R&D and CAPEX expenditures, allowing us to spend less than anticipated at the start of the year. Our goal remains to invest in the future while doing so efficiently, and we’ve already seen benefits from this approach in the first half of the year.

Thank you very much.

Thank you, sir. Carlos, next question. Yes, sir. We will now go to George Galliers of Goldman Sachs. Please go ahead.

Yeah, thanks for taking my questions. And I have to say with a 14.4% margin in 1H it is great to hear you say that from the inside, you can tell us that plenty still went wrong, certainly no complacency at Stellantis. But an exciting development during the first half was the unveiling of the Stellantis Medium Platform, which you mentioned has sector benchmark performance. Can I ask what do you consider the benchmark here, is it Tesla or is it an amalgamation of Tesla and some of Stellantis' traditional competitors? And today, your margins are materially above benchmark on the ICE vehicles so should we expect Stellantis to also target above benchmark margins on your best.

Well, thank you, George. Two great questions. First of all, STLA Medium has been engineered to have a very efficient packaging of energy so that we offer 700 kilometers of range so that we kill range anxiety for the families that have one single car in the family. So it's capable of up to 720 kilometers of range, if my memory is correct. And it is correct with no less than 98-kilowatt hours of energy storage. At the same time, we work very hard on the powertrain line, on the transmission line to make sure that we have the highest efficiency in terms of energy consumption with less than 14-kilowatt hours per 100 kilometers. And I'm not giving you the precise number because I don't want to give that number to my competitors. So to whom do we compare ourselves when we talk about best-in-class performance. To make it simple, we compare ourselves to Tesla. We compare ourselves to the Koreans, mostly. But we always have an overview and there is nothing that we do right now in engineering in this company that is not aiming at being best-in-class. Now what may happen is that while we are doing this on a three to five years' time window, somebody else will come and do a better performance than what we forecasted, which is part of the difficulty of this kind of forecasting. But based on the forecast we have on the progress of the market, everything we do right now in engineering at Stellantis is aiming at being best-in-class and our CTO and Head of R&D, Ned Curic, is very, very heavy on that one, making sure that we make the difference through our engineering skills. Of course, it's very demanding. Of course, we have endless discussions from time to time, but it's exciting. And we are leveraging the best scientific education that we can have from our technical centers all over the world. I think actually that this is a very important topic here. So what about the margins on BEV? What I can tell you is that every electrified vehicle that we sell is highly profitable. The question that you will have, and it's a legitimate question is, when do we have the same margins? We are getting close. We are getting close, but we should be careful, because I could give you the answer you would like me to give you, which is very soon, we'll have exactly the same margins but that would be a distorted answer that I do not want to give to you. I think we will be interested in knowing what are the margins when we will consider both you and me, that we have reached a level of affordability of the BEV products that protects our customer base at a middle class level. And I think we should ensure that we have the same margins, worst case when we will be selling BEVs at a price that protects the affordability for the middle classes, which means protects the size of our customer bases. And that's the relevant point for comparison of the margins. But right now, as you may imagine, we could not be making 14.4% AOI margin if our electrified products were not profitable. They are very profitable, but they are also very profitable at the price point that is not today affordable enough for the middle classes, and that's where the challenge on the cost reduction needs to happen in the next few years to bring back BEVs to a price point that middle class can pay for and then check that we have rewarding margins for the electrification. But we are in our way, and there is no red ink in our company because that's something that on our business culture is not accepted by anybody. There is no red ink. But in some cases, we may have pricings that we will consider as being too high for the future, and that's where we are now working hard on the cost reduction of those technologies.

Thank you.

Thank you, sir. Our next question is from Daniel Roeska calling from Bernstein Research. Please go ahead.

Natalie, Carlos, good afternoon. Congratulations to the entire team on your results. Natalie, welcome to this intriguing business. As you entered the company, you must have had certain expectations about what you would encounter. Can you share some of the highlights, surprises, or even disappointments you experienced during your initial days? If I were to ask you to explain, with a fresh perspective, why now is an ideal time for investors to become part of the Stellantis story, what key highlights would you emphasize that could drive shareholder returns in the coming years? Thank you.

Thank you for the question. I've only been here for about two and a half weeks, so these insights are still very new for me. It might be more insightful to ask me again at our next meeting. One thing I've really appreciated is that, when I considered joining this company, I noticed it embodies strong brands, great people, and innovative approaches. Those qualities align perfectly with what I value. As I’ve delved deeper into the business, I've started to understand why it aligns with my expectations. Efficiency is essential for us, but it's also about growth and vision, and we're looking to transform this industry into something entirely different. What I've observed is a team that is highly motivated, demonstrating urgency and excitement around this mission, which truly inspires me. As Carlos mentioned, there are always areas for improvement. Moving forward, I want to communicate with the investor community not just on our successes but also on how we can share incremental achievements to build confidence that our ambitions are achievable through clear steps. Regarding areas that might need attention, I haven't identified many yet, but there's always room for improvement. Sustainability is very important to me, and while this team is making good strides, there's potential for a more comprehensive approach. Also, I'm excited about the growth opportunities in what I consider our third engine, particularly focusing on Europe and the U.S., which have traditionally been our business strongholds. There’s a vibrant energy there that I believe will drive significant developments moving forward. Those are just a few thoughts, and feel free to ask again in the future—I’ll likely have even more insights then.

Great, thanks. I'll come back on Q3 and we can discuss challenges after UAW and then we'll talk about the €60 billion reserve and what to do with that later.

Yes, those are definitely on my list. No worries.

Thank you, sir. Our next question is coming from Mike Tyndall calling from HSBC. Please go ahead.

Yeah, hi. Thanks for taking my questions. I wonder if I could just pick up on a comment you made in the preamble around FIFO. Were you talking about orders and is there a potential here where if you are filling orders that have just come in simply because of the logistics issues that perhaps some of those orders that are sitting further back in the backlog maybe have less favorable pricing. So just wondering what impact, if any, we might see as you kind of normalize going into September, as you mentioned?

That's a great question. When it comes to pricing, we tell our team that the first to raise prices and the last to lower them wins. Since the start of the semiconductor supply crisis, we were among the first to increase our prices and are currently the ones most resistant to losing pricing power. We are managing a backlog of aging orders, totaling about 100,000 to 150,000 out of 2 million orders. While it's a small fraction, we value our customers and aim to deliver their cars quickly. These cars were priced high during a certain timeframe, so we don’t anticipate a negative impact on our earnings from their delivery. We appreciate our customers' loyalty, and I apologize for any inconvenience caused as we work on fulfilling these aging orders. According to our plan, we expect to resolve this by the end of September, with significant progress by August. To expedite the process, we’ve decided to reduce our summer break in August to boost production and clear these orders. As we move forward, we are returning to normal logistics and car flow management after a period of disruption caused by manufacturing challenges. We had to prioritize orders we could fulfill based on available parts, which created a complex situation in our logistics. The capacity issue is now fixed at 95%, and we are focusing on clearing the backlog while respecting our customers. This is a challenging task for a company of our size, and I want to commend my supply chain teams for their relentless work in addressing these problems. They are doing a great job, and I am grateful for their commitment.

Okay, thank you.

Thank you, sir. The next question is coming from Jose Asumendi calling from J.P. Morgan. Please go ahead.

Thank you. Hi, Carlos and welcome Natalie. Just one question, please and congrats on the results and the very strong pricing you showed in the first half. Just coming back to the topic of the Chinese invasion in Europe, Carlos, can you share your thoughts as to how you're going to plan to compete in this €25,000 price segment. You mentioned the product introduction of the Citroen there, but can you give us a bit more color as to how you plan to compete in this segment on battery, on electric motor, and the value chain? And also connected to this topic, do you think you will be able to really sign an entry into the Chinese market in the next two years in the light of the offensive we have from Chinese exports into Europe? Thank you.

Thank you, Jose, for those insightful questions. The challenge facing Western carmakers in high-cost countries is quite straightforward. We need to determine if we can produce cars priced below €25,000 profitably to provide a safe, clean, and affordable option for the middle class in the western world. When my U.S. colleagues asked about an affordable electric vehicle in the U.S., it was around $25,000, which is quite similar. This indicates that we must develop a sourcing strategy that allows us to sell vehicles like the Citroën C3 for €25,000 or less while remaining profitable. To achieve this, we have a couple of options. First, we can pursue breakthroughs in cost-effective design and advancements in battery technology to lower overall production costs. Alternatively, we can aim to match the cost structure of our Chinese competitors, which would require competitive local content sourcing. I'm assuming here that there are no specific subsidies for Chinese automakers that give them an edge in markets outside their domestic landscape. If we want to make the Citroën C3 profitable at under €25,000, we need a highly competitive cost structure, heavily reliant on local content sourcing. Additionally, we must collaborate with top-tier battery suppliers to secure the best energy, cost, and weight packages. We believe that our Smart Car Platform strategy, which we've been developing for several years, gives us the right approach. We feel fortunate to be ready at a time when Chinese competition is rising, as we started this initiative six years ago, and it took considerable effort to bring it to fruition. In summary, to effectively compete with Chinese manufacturers in Europe today, we need a sourcing strategy that equips us with similar competitive advantages, along with partnerships with leading battery suppliers to achieve optimal cost per kilowatt hour. Furthermore, we have proposed a social leasing program to the French government, offering a monthly fee of around €100 to facilitate mobility for the middle class, which is also profitable owing to our strong sales finance and leasing operations. We're optimistic about our timing and upcoming product launches. By the end of 2024, we plan to have 47 battery electric vehicles available, which represents nearly half of our model portfolio. This includes exciting launches in the U.S., starting with the ProMaster EV and followed by the Dodge, Jeep Recon, and Wagoneer S. On the European side, we'll also see significant product refreshes. Importantly, we will roll out the first applications of the STLA Medium Platform focused on the C segment by the end of this year. Currently, we lead the A, B, and LCV segments, but we've lacked offerings in the C segment. This gap will be addressed by our forthcoming BEV products. There's a lot to look forward to, Jose, and hopefully, we can reflect on our progress positively in the coming years.

Thank you much, sir. Ladies and gentlemen, due to time constraints, we only have time for one more question. And the last question today is coming from Mr. Stephen Reitman of Societe Generale. Please go ahead, Sir.

Yes, thank you. I'd just also like to keep developing that point about the unicorn of the cheap battery electric vehicle. Obviously, a lot of attention on that and particularly on the big U.S. guy doing that. But obviously, in January, you unveiled the Ë-C3 in India with an incredible price of about €13,000. I'd just like to know what kind of steps you take to bring this car to Slovakia and still keep it at an affordable level and what changes do they need to undergo in order to be European combined? Thank you very much.

Thank you for your question, Stephen. If you bring the car to Slovakia, it falls within Europe, which means it won't be subject to any carbon tax because it's part of the EU. I'm assuming that we won't start imposing custom duties within Europe, as that could lead to negative consequences. We can achieve strong low-cost country sourcing for parts with competitive manufacturing costs from Slovakia. This allows us to maintain cost competitiveness without needing to source outside the EU, as there is a significant variation in manufacturing and sourcing costs within Europe. To illustrate, there is up to a threefold difference in manufacturing costs across Europe. This substantial variation allows for low-cost sourcing in Europe, safeguarding against carbon taxes or custom duties since it's all within Europe. Additionally, we can generate local content in a cost-competitive way, ensuring a highly competitive total production and distribution cost. Our sales finance and leasing operations are already very competitive, supporting the monthly fees. We wouldn’t propose this just to lower prices for the sake of it; we do this because it's profitable, and I believe there’s still room to further reduce costs in the future. While it's challenging, it’s essential for providing clean and safe mobility to the middle classes in Europe, and I feel positive about that. This initiative won't just involve one product; it will be a range of products, leading to multiple announcements, all of which will be profitable. I am confident we can address the affordability issue for the middle classes.

Thank you, sir. As we cannot take any further questions I turn the call back over to the speakers for any additional or closing remarks. Thank you.

Well, first of all, we are blessed with your questions and I'm so happy to be here sitting in front of you with Natalie, who is going to bring us a different perspective, a fresh perspective on the many things we think we know, and perhaps we don't. That's good. That's part of the transformation of our company. It's part of the recognition that we should not continue to kick the can down the road. The world is changing. Many things are changing, and we are really blessed with the fact that Natalie accepted to join the team to bring us this fresh perspective, and it's already visible. So thank you, Natalie, for joining and thank you for that. I also think that we have the right strategic plan because the execution of the strategic plan is delivering record results. So what is the best way to demonstrate the plan is correct is that the results are there. And then we can manage this transition without putting ourselves at risk and without asking any additional support to any of our shareholders. It's rather the reverse. We are creating the conditions to reward our shareholders in a meaningful way, and that's good for all of us. So I just want to tell you that this team is focused on performance. And this team is confident about executing the transition, the transformation, which is not an addition. And we are doing this as one single company. There is no old co, new co. This is one co moving at the same pace in the same direction and putting all the energy, all the expertise, all the team working on one single direction, which is to make Stellantis win. And we'll see in a few years how many competitors will have to continue to play with. That's going to be the wildcard that, of course, you have to answer to. But thank you for your support. Thank you for your time. Thank you for your interest, and see you very soon.