Stellantis N.V. Q4 FY2023 Earnings Call

Hello and welcome to Stellantis Full Year 2023 Results. I'll now hand the call over to our host, Ed Ditmire, Head of Investor Relations to begin today's conference. Thank you.

Hello, everyone, and thanks for joining us today as we review Stellantis' Full Year 2023 Results. Earlier today, the presentation material for this call as well as a related press release were 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 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 included on page two 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.

Thank you, Ed, and good morning and good afternoon to all of you. Natalie and I are delighted to host this session for the Stellantis 2023 financial results announcement. We know that you are very busy people and therefore we value your time and thank you warmly for your interest in Stellantis. Let's get started. First of all, 2023 was another record year for our company. A record in net revenues plus 6%, a record in net profit plus 11%, and a record in free cash flow plus 19%. So, a record year in a very turbulent environment that demonstrated once again that we are a highly resilient company. We are an all-weather company, as I'm sure you already know. We are happy to be here with you today to discuss what has been accomplished and to answer your questions. It is fair to say that not only were we able to navigate through a turbulent year with record results, but we have demonstrated our readiness for the future. We are executing our transformation. We are doing what we have committed to in the 2030 plan. And we are ready. We are ready for 2024 and the next steps of our transformation. We are equipped with a very flexible capability, and this is something I am sure we will all discuss today. From here, I would like to move to the next slide which highlights a real game changer: the brand new eC3 from Citroen. This is a B-hatchback, a pure BEV that will be sold in the European market at EUR23,300 for the mid-trim. The entry trim will be sold from EUR19,990. Why is this important? Because at this price, this product is profitable for our company and represents an affordable offering for our middle-class customers. It is crucial to offer BEVs at the price of ICEs for our middle-class customers. This is where we stand. We will offer this EUR23,300 eC3 mid-trim with 320 kilometers of WLTP range, which is very competitive. Later on, we will bring an even more price competitive product at EUR19,990 for 200 kilometers of range. This demonstrates our preparation to deliver the most challenging part of our mission. As you know, our mission is to deliver clean, safe, and affordable products to protect the freedom of mobility. With this BEV product at a competitive price and excellent features, we are ready for the race. If we step back and look at this year, first of all, we must recognize that we are a growing company. Our strategy is about growing profitably, not shrinking. We increased our net revenues by 6%. We have a very efficient overall AOI amount of EUR24.3 billion with a 12.8% margin. Our record industrial free cash flow reached EUR12.9 billion, up 19% from last year. This consistent growth in cash generation reinforces that Stellantis is an efficient organization. We are confirming a significant capital return to all of you: the 2023 capital return of EUR6.6 billion, 16% compared to the January 1, 2023 market capitalization. We believe this significant return is something we owe to you, and we have even better news for 2024. Looking ahead, we are committed to increasing our BEV sales and zero-emission vehicle sales. We have shown that our BEV sales are up 21%, LEV sales are up 27%. We rank number three in Europe and number two in LEV sales in the US, and we are number one in PHEV sales in the U.S. We are the undisputed leader in light commercial vehicles in Europe and Latin America with respective market shares of 30.4% and 28.6%. We are also the leaders in electrified mobility for LCVs in Europe with a 38.8% share. In terms of our forward commitments, we are also ahead of plan concerning our third engine, which includes our operations in North America and Europe. This third engine could grow at twice the pace of the whole company, with a forecast of a 13% increase in net revenue compared to 6%. Our profitability remains strong, and this means our strategy toward expanding the third engine is being executed ahead of plan. Regarding our BEV offensive, we currently have 30 models on sale in 2023, and we plan to increase this to 48 models. Eight of these additional models will be dedicated to the US market, confirming our commitment made last year to ramp-up our BEV offensive in 2024. Our goal is to double net revenue by 2030 while maintaining our AOI margin above double digits. As for capital return, we are proposing a EUR3 billion share buyback for next year, effectively doubling the buyback of 2023, along with a dividend increase of 16%. This represents a significant enhancement of capital returns to our shareholders, aligned with our principles as we prioritize your best interests. Moving on to regional performance, starting with North America, we've delivered a robust 15.4% AOI margin. Despite challenges in September and October 2023, we preserve our position, noting a 100 basis point decline from last year. I want to express my warm thanks and appreciation for our North American teams and all that they have accomplished. While we faced challenges and lost some market share, we now understand the operational issues better and believe we are on track to correct them. The things we did not excel at in 2023 will serve as opportunities for significant improvement in 2024. Moreover, we've managed to retain the best US average transaction price in the industry compared to direct competitors. We have doubled our PHEV sales to 136,000 units in 2023, gaining traction in the transitional period with plug-in hybrid technology, which remains a great success in the US market. Commercial fleet sales have seen a 20% increase, and we have introduced ProMaster EV, expanding our offerings to corporate fleet customers. Our strategies in pickup trucks encompass a broad range of technologies from ICE, pure BEVs with an impressive 500-mile range, to other options, solidifying our coverage of this market segment. We have achieved robust results in North America and see opportunities to elevate our performance further, particularly in the US and Canada. Shifting focus to Europe, we are pleased to report a stable 9.8% AOI margin with profits reaching $6.5 billion amidst intensified competition. Notably, we've seen a significant uptick in LEV and BEV sales, and we have maintained our AOI margin while growing profitability, which marks a great performance considering the competitive landscape. Although we experienced a 140 basis point decline in market share, we believe that our order book is filling efficiently. Our recent marketing efforts have received a positive response, enhancing overall sales. Regarding BEV market shares in Europe, we recognize we have to balance profitability while growing sales. Our aim is to enhance the BEV share in the C segment, where we recognize the need to improve. Our ability to capitalize on online sales, which have seen a 55% increase, demonstrates a promising future prospect. Our leadership in the LCV market, with a 30.4% market share and 38.8% share for BEV Pro One vans further illustrates our dominance. We are executing our plans to bring gigafactories to our markets and ensure regional sourcing of battery cells, with the first plant in Douvrin, France on track to manufacture primary production. Moving to our business performance in the Middle East and Africa, we doubled our profit, achieving an AOI margin of 23.7%. Middle East and Africa emerged as our most profitable business segment while South America reported an AOI margin of 14.8% with profits up 16%. In Asia Pacific, we are focusing on harnessing the strategic partnership with Leapmotor, which presents a significant growth opportunity as we control electric vehicle exports outside of China. The growing Citroen C3 sales in Asia Pacific reflect success in our smart car platform strategy. The third engine — which includes these regional growth areas — has been performing well and was on pace to match European profitability very soon. We are also expanding our financial services; our US operations, now live, are growing rapidly with $7 billion in receivables expected to surpass $10 billion by 2024. Increased financial efficiency in our European operations has reached EUR56 billion in receivables, up 21% from last year. We are establishing circular economy initiatives, experiencing significant growth and margin improvements. Overall, we are very excited about the creativity and growth potential in this business. I would also like to highlight the impressive global performance of Alfa Romeo, with 33% global sales growth driven by projects like the Alfa Romeo Stradale 33. You will see us ramping up new offering in pickup trucks with significant advancements, and we expect very strong market reception. Finally, I will hand it over to Natalie for details on our financial results.

Thanks very much, Carlos. Let me start with a focus on four key metrics that highlight the significant developments in our financial performance over the last 12 months. The first one is consolidated shipments, which are up 7% in 2023 to 6.2 million vehicles. Net revenues grew 6% to reach EUR190 billion. AOI is another key metric for us in the group, and here we delivered a strong 12.8%. Lastly, Stellantis delivered an industry-leading industrial free cash flow of EUR12.9 billion, reflecting a 19% increase compared to 2022. Now, let me go through each of these KPIs in detail. Top line growth was driven by volume and mix, with higher shipments especially in enlarged Europe and the Middle East and Africa. This was supported by full-year pricing improvements of 4%, which helped offset significant FX headwinds resulting from the strengthening euro against the Turkish lira, US dollar, and Argentine peso, reducing revenue by EUR6.5 billion. Regarding H2, revenues were essentially unchanged due to increased FX impacts and some pricing moderation. Shifting to AOI, which came in at EUR24.3 billion. The strong pricing I just mentioned added an additional EUR6.7 billion margin benefit. Our total net cash synergies were EUR8.4 billion in 2023, with more than EUR5 billion positively impacting our AOI, showcasing the benefits of the merger. However, we also faced headwinds; FX resulted in a negative impact of EUR3.8 billion due to industrial costs, which offset substantial manufacturing improvements and benefits from raw materials. In terms of SG&A expenses, we have maintained cost discipline at Stellantis, reducing SG&A as a percentage of sales from 6.1% in 2021 to 5% today, which is unique in the industry. For H2 AOI development, net pricing gains decreased, FX headwinds intensified, and industrial costs became margin-accretive thanks to lower raw material costs. Regarding inventories, year-end figures rose by 72,000 units sequentially, representing a net impact of a 15% reduction in company inventories due to improved delivery logistics in Europe. We do not expect further significant inventory increases in 2024. Industrial free cash flow reached EUR12.9 billion, marking a 19% increase versus 2022. The strong growth was driven by higher AOI, reduced negative impacts of D&A, and a positive development in financial charges and taxes. Our liquid and solid financial position is reflected in a nearly EUR4 billion net financial position growth to EUR29 billion at year-end 2023. Our industrial available liquidity remained stable year-over-year at EUR61 billion. In 2023, Stellantis delivered a record EUR6.6 billion to shareholders, comprising EUR4.2 billion in dividends, EUR1.5 billion in the share buyback program, and EUR900 million in share repurchases from Dongfeng Group. We intend to propose a EUR1.55 dividend per share at our next AGM, reflecting a 16% increase, consistent with our guidelines. We're also announcing plans for a new EUR3 billion open market share buyback program, effectively doubling the size of last year’s initiative. Overall, we aim to deliver returns of EUR7.7 billion in 2024, equivalent to an 11% yield on the Stellantis market cap at the beginning of 2024. Now, let’s discuss capital returns and the financial outlook for 2024. We expect favorable conditions for revenue growth, aided by moderating interest rates that will support improving affordability and consumer demand over time. Supply conditions are approaching pre-COVID and semiconductor crisis levels, and our delivery logistics have notably improved. We are well-positioned with a robust product portfolio. Regarding AOI, we reaffirm our commitment to a double-digit margin for 2024. While we remain focused on maintaining or improving our performance, we acknowledge several headwinds challenging our strategies. However, lower raw material costs are expected to provide positive contributions, and logistical costs should continue to improve. Our continued emphasis on strong industrial free cash flow will guide our capital expenditure and R&D efforts. In summary, we see a favorable macroeconomic backdrop, confirmed our double-digit margin commitment, and aim to sustain strong positive free cash flow to enhance capital returns. I’d like to remind you about upcoming investor events, particularly the investor day planned for June 13th in Auburn Hills, where we will share detailed insights on our evolving products and services. This concludes my financial section. I'll now turn it back to Carlos for concluding remarks.

Thank you, Natalie. Thank you for the clear presentation. I would like to share with our investors a couple of additional points. In 2024, we anticipate a strong LCV-based business driven by the six brands shown on this slide. Remarkably, we hold a 30.4% market share in Europe, 38.8% in BEV in Europe, 28.6% in South America, and 21.8% in the Middle East and Africa with positive growth. If we break down our performance between H1 and H2 of 2023, we note an upward trend as we aim to regain profitable market share moving forward. Our significant product launches, including significant models like the 2025 RAM 1500 and the ProMaster BEV, position us well for future competitiveness in the market. Moreover, we are uniquely positioned in offering BEVs, fuel cells, and range extenders in our LCV segment. Starting in 2024, 1% of our new vans and pickup trucks will be connected and activated upon delivery. So, we have solid opportunities ahead. Our BEV offerings are also increasing substantially—we will expand from 30 models in late 2023 to 48 models by the end of 2024, featuring flagship models like the Peugeot E-3008 and Dodge Charger. I’ve driven these cars personally, and I assure you they exemplify outstanding technology and performance. The product pipeline of Stellantis is gaining momentum just three years after establishment. Our multi-energy platforms provide versatile solutions, enabling us to cater to diverse market needs. We must continue reducing costs to facilitate BEV affordability reaching equal levels with ICE vehicles. We believe we are headed in the right direction. Our diverse energy platforms mitigate market uncertainties and provide a competitive advantage. We plan to introduce additional BEVs in 2024, with eight of them focused on the North American market. In conclusion, I want to express my sincere gratitude to our employees, union partners, and board members for their unwavering support in executing our strategic plan. We are on track to achieve record results amidst numerous challenges. Our cohesiveness as an organization, representing over 170 different nationalities, is compelling, and I firmly believe we are moving in the same direction towards shared objectives. I appreciate all support from our investors; your stability is invaluable. Now, let's proceed to the Q&A session.

The first question today comes from Daniel Ruska of Bernstein Research.

Hi, gentlemen. Hi, Natalie. Good afternoon. Good morning. Carlos, market shares have declined in some parts of the business, and I was wondering, how important is it for your long-term positioning to carefully regain some of those points? In order of priority, what's most important to you? And then, is the yardstick of reaching share parity between ICE and BEV, a benchmark you would like other Stellantis brands to achieve as well?

Thank you for the great questions. Firstly, it is critical for us to protect our market share since we have committed to doubling our net revenue by 2030. While it is important to regain market share, we want to do it respectfully while maintaining profitability. For example, you noticed the improved share we achieved in January 2024 in Europe compared to the end of 2023. We are actively working to regain our market share without compromising value. Regarding market parity, we do believe it is essential to achieve this quickly. This is necessary to protect ourselves against the Chinese offensive, which we already see making an impact in the market, both in Europe and the US. To ensure we maintain a healthy business model, we must level the margins between BEVs and ICE. Currently, we have known ways to decrease total production costs on BEVs. Recently, the pace of production cost reduction for our BEVs has outstripped that of ICEs, allowing us to further close the gap. That said, we need to maintain this momentum if we want to compete effectively. Thank you.

Our next question comes from Philippe Houchois of Jefferies.

Good afternoon. Thank you very much. I would like to ask about EV adoption. It seems to me that EV adoption is not solely contingent on lowering prices. While we have observed significant price drops, we have not necessarily seen corresponding increases in demand. Additionally, a healthy used car market is essential for supporting leasing, etc. Considering Stellantis' broader value chain, what needs to be accomplished in order to ensure a gradual progression of EVs rather than just waiting for inexpensive models?

Thank you, Philippe. That's an excellent question. I believe EV adoption relies on aligning four critical elements. The first element is clean energy—without clean energy, CO2 emission reduction strategies will falter. The second element is a visible, accessible charging network that integrates with customer life, making it easier for users to find charging stations conveniently as they go about daily activities. The third is the product itself, which must be enjoyable, with outstanding features including NVH, acceleration, and range. We have strong products coming from our STLA platforms which are approaching that ideal. Lastly, there is affordability; while we appreciate that it’s not the only factor, it is significant. The Citroen eC3 is one example of how we will drive affordability while ensuring the BEV technology continues to be refined. When these four elements align, I concur with you that the market can move quickly. The presence of a strong Chinese offensive will also drive us to expedite the alignment of these elements. I assure you, we remain committed to executing our forward plan unabated.

Thank you.

The next question comes from George Gallier of Goldman Sachs.

Thank you for taking my question. Carlos, as you're aware, some of your US and European peers have suggested they will grow operating income in 2024. I know you've described this year as turbulent, but do you think flat AOI or indeed AOI growth is feasible for Stellantis? Also related to that, you set a revenue target in 2022 of EUR200 billion for this year; is that still achievable?

Thank you for the question, George. Let me provide a high-level response, and I’ll then allow Natalie to elaborate further. To simplify, the average transaction price of BEVs currently exceeds that of ICEs, which is a crucial factor for growing our top line. Furthermore, while I acknowledge our challenges in 2023, I also recognize that we will use these challenges as opportunities for improvement. Customers respond well when we invest more in marketing rather than discounting. With the recent changes in our North American leadership, we expect our new executives to drive returns on market share previously lost. We remain focused on operational excellence, continually striving for improvement in all facets of our performance.

To add, yes, the LEVs contribute positively, but we have various other factors. We anticipate growth in revenue across all regions, and we view this as promising for the year. Regarding AOI, it’s essential to highlight that we start every year evaluating competitive pressures before issuing guidance. We identify headwinds versus opportunities before committing to inquiries. While there are more challenges than tailwinds at present, we are determined to manage and control all variables within our reach. We will focus on operational excellence, quality, cost management, and resource allocation to ensure we provide guidance reflecting our actual capabilities.

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

Next in the queue is Patrick Hummel of UBS.

Thank you. Good afternoon, everyone. Carlos, regarding the production flexibility, could you elaborate on that? Is it true that every plant and production line can handle STLA architectures for BEV, ICE and hybrid versions concurrently? How do you manage supplier variability given that parts differ depending on the vehicle type? For Natalie, considering your strong balance sheet, should we perceive your cash position as a potential war chest for any future M&A opportunities?

Patrick, those are great questions. I recommend you visit one of our plants for firsthand experience of our flexible capabilities. Indeed, our multi-energy platforms support concurrent production of ICE and BEVs. Three years ago, the prevailing thought suggested that multi-energy platforms compromised BEV performance, prompting us to study the trade-offs. Our conclusions indicate marginal differences in performance compared to dedicated BEV components. Notably, our facilities, such as the one in Ordan, produce LCVs for ICEs, BEVs, and fuel cells on the same line. The assembly process is straightforward, requiring only the addition of a battery pack to the main assembly. As for M&A, we are well-positioned to face the competitive landscape with our strong profitability. While we have no current M&A activities, if opportunities arise, we’ll choose with an eye toward enhancing value. Natalie, feel free to add any thoughts.

As we approach the future, our focus will remain on the journey ahead. We have transitioned into a position where we are actively pursuing a strong balance sheet while delivering increased shareholder returns. We view our strong financials as a solid foundation to maintain our growth trajectory while remaining flexible to seize the right opportunities.

Thank you, Natalie. Let's move on to the next question.

The next question comes from Dorothee Cresswell of BNP Paribas Exane.

Hello, and thank you for taking my question. Following Daniel's earlier inquiry, how quickly can we replicate the strong profitability seen in Europe for North America with your upcoming BEV launches?

Thank you, Dorothee. The short answer is 2025. Most of our major launches are planned for the second half of 2024, with the ProMaster EV already in sale. You can expect to observe strong profitability in North America from our BEV launches during the 2025 fiscal year. By the end of 2024, the ramp-up impact of these launches will become apparent. Meanwhile, in Europe, we are currently positioned to achieve remarkable BEV performance, particularly with models like the Peugeot E-3008. Our proactive marketing strategies are helping us capture shared market dynamics, particularly within the B segment where we hold a strong market share.

Next in queue is Michael Jack of Bank of America.

Hi, good morning and good afternoon. Thanks for taking my question. Congratulations on the excellent results and increased shareholder returns. Regarding AOI, while pricing remains difficult to predict, could you share your insights on the pricing environment in both Europe and the US and the dynamics between BEVs and ICEs? Also, Natalie, are BEVs factored into your guidance, or are they part of your strategy to counter various headwinds?

Thank you, Michael. The BEV landscape is interesting. We are aiming to improve affordability by reducing total production costs for our BEVs, which is essential for driving demand. Surprisingly, with more discussions around BEV demand and growth, raw material prices are decreasing, which will also help enhance affordability. Thereby, the take-off of BEVs is directly tied to cost reduction strategies. While we closely monitor ICE performance, our focus on management and production costs helps ensure we can generate solid margins while we work on pricing. Natalie, please share your insights.

Certainly, pricing dynamics are complex and multifaceted. In North America, there have not been radical downturns in pricing; the market remains disciplined. While pricing for EVs in Europe shows volatility, we are committed to maintaining strong pricing against our peers. That’s a unique selling proposition we have cultivated over the years, which we intend to sustain. Our focus will always be on cost management and leveraging our efficiencies while navigating market fluctuations.

Thank you, Natalie. Let's proceed to the next question.

The next question comes from Jose Asumendi of JPMorgan.

Thank you very much. Could you please comment on the growth rate we expect from your third engine across the three regions in 2024? Do you anticipate that profitability will remain as high as it was in 2023?

Thank you, Jose. The results presented earlier are ahead of our projections. The third engine has shown remarkable performance—doubling profits in 2023 compared to 2022. We expect to match European profitability levels for the third engine in 2024, with potential improvements reflecting our robust product lineup and pricing strategies. We are actively moving toward local sourcing, ensuring we meet regional demands efficiently. Notably, we already have a stronghold in several markets which further confirms our expectations of growth. As we near the conclusion, I wish to thank all of you for your support and for the quality of your questions. Your inquiries stimulate our thought process. For that, I sincerely appreciate our dedicated employees and outstanding leadership teams—they work diligently to create the remarkable results we have achieved today. We are in a competitive and dynamic industry, where staying united in our goals enables us to thrive. I look forward to sharing our ongoing progress with you. Thank you. Have a great day.