Stellantis N.V. Q4 FY2024 Earnings Call

Hello, and welcome to Stellantis Full Year 2024 results. I will now hand over to our host, Ed Ditmire, Head of Investor Relations to begin today's conference. Thank you.

Hello, everyone, and thank you for joining us today as we review Stellantis' full year 2024 results. Earlier today, the presentation for this call along with the related press release were posted under the Investors section of the Stellantis Group website. Today, our call is hosted by John Elkann, Executive Chairman; and Doug Ostermann, the company's Chief Financial Officer. After their prepared remarks, Mr. Elkann and Mr. Ostermann will be available to answer questions from the analysts. Before we begin, I want to point out that any forward-looking statements we might make on today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on Page 2 of today's presentation. As customary, the call will be governed by that language. Now, I'll hand over the call to John Elkann, Executive Chairman, Stellantis.

Thank you, Ed. Doug and I are pleased to be with you today. Good morning, good afternoon, and good evening to everyone. We want to discuss our last 90 days, our plans for 2024 and 2025, and our future. Before we dive in, we would like to show you a preview of the new ad for the Grande Panda, featuring Shaggy in celebration of the 30th anniversary of his hit song, Boombastic. Enjoy. The purpose of sharing this ad is to reflect the current momentum and mood at the company, emphasizing our commitment to winning customers. Over the past 90 days, we have prioritized product launches, with plans for 20 in 2024 and 10 in 2025. In December, we're reintroducing muscle cars in the US with the Dodge Daytona and the Jeep Wagoneer S. We also launched products in January in Europe, including the Grande Panda, alongside the Citroen C3 and the Opel Frontera. We have focused on building trust with our stakeholders and appreciate your ongoing support. Ed, Doug, and I have been actively reaching out to keep you informed about our company. Additionally, we are working closely with our suppliers, unions, and dealers, as we believe unity is essential for our growth. Furthermore, we are empowering our regions to make decisions based on customer needs and to solve problems as they arise. Looking ahead, our main focus is on achieving profitable growth. It is crucial for our company to return to this state. We must execute effectively as we develop, build, and sell our vehicles. Additionally, we need to ensure that our revenue translates into profit and that these profits convert into cash. One of our key strategies is to allocate capital where our customers are. We are intentionally expanding our product offerings and powertrains to increase our market coverage, including hybrids in Europe, combustion engines in the US, and a strong presence in South America, especially in Brazil with bio-hybrids. I have more positive updates to share, but I will now pass it over to Doug to discuss 2024, a year that we are not pleased with.

I certainly agree with your sentiment, John. 2024 was a very rough year. So let's walk through the numbers. I'll start with a summary of the key performance metrics. I'd like to focus first in particular on the AOI margin and industrial free cash flow and how these landed within the context of the full year guidance that was updated in September of last year. In the second half of the year to address excess US dealer inventories, the company increased incentives and curtailed production, negatively impacting the AOI, which ended up at the bottom of the range we had provided of 5.5% to 7% AOI margin. At the same time, success in correcting inventories allowed us to begin normalizing production, which limited negative industrial free cash flow to EUR6 billion for 2024, closer to the better end of the negative EUR5 billion to negative EUR10 billion guidance range. Consolidated shipments of 5.4 million vehicles were down 750,000 units or 12% due to the following factors. About one-third of that decrease was the result of our inventory reduction actions. The other two-thirds were related to lower sales in 2024 compared to the prior year, of which about half was due to the temporary hiatus in certain nameplates, such as our European ICE-powered Fiat 500, the Dodge two and four-door muscle cars in the US, and, of course, the absence of the Jeep Cherokee. The other half was due to lower commercial performance and a loss of market share. Net revenues of EUR157 billion declined 17% as two factors exacerbated the lower shipment volumes. First was mix, particularly due to a lower contribution from North America, and the second was FX headwinds that we experienced in the third engine regions. Adjusted diluted earnings per share of EUR2.48 declined 61%, with AOI down 64%, but the average share count was 5% lower as a result of buyback activities. Now, let's discuss how we've been working on fixing the root causes of the operational issues we faced in 2024. We're set up to be in a much better position on three critical factors as we progress into 2025. First, inventory discipline. Second, market coverage. And third, our competitiveness. On inventories, we first normalized European inventories in the first half of the year, and then in the second half, we reduced US dealer stock from 430,000 units in the midyear to 304,000 units at the end of the year, well below our stated target of 330,000 units. Second, we're launching several exciting new products, not only late 2024 launches of the initial smart car and STLA Large products, namely, nameplates like the Citroen C3, Dodge Charger, and the Jeep Wagoneer S, but also in Q1 of 2025 introductions of the Citroen C3 Aircross, the Opel Frontera, and the Fiat Grande Panda. Lastly, there was progress on making our cars more affordable as we exited 2024. For example, in the US, we repositioned MSRPs for four of our 2025 model year Jeeps. In Europe, our new generation of appealing B segment cars brings BEV and mild hybrid powertrains to new price points. Let's look quickly at where we ended the year on inventories. We're in a very healthy place at the group level as well as in each of the four major regions we operate. Total inventories were reduced by around 140,000 units over the last three months of the year, with all of that decline coming in company inventories, while dealer inventories rose a nominal 11,000 units. As planned, increases in South America and Europe were mostly offset by reductions in US dealer stock. You can also see the decline in stock year-over-year, reflecting the more refined inventory management and the impact of some of the product lines where we were temporarily between generations. As we launched several significant models in 2025, we expect some built-in stock levels, but we'll be looking to keep the days supply very carefully managed. Okay, on this next slide, let's look at the net revenue bridge. Net revenue for the group declined 17% in 2024, as I said at the beginning of the financial review, volume and mix were the biggest revenue headwinds, driving 15 points of that revenue decline. Moving to pricing, there was a negative EUR1.3 billion group impact or a little under 1%, which was the net of a roughly 2% headwind in each of North America and Europe, partially offset by positive pricing in the third engine regions, primarily to offset FX. FX headwinds were negative EUR3.6 billion or negative 2%, driven by declines in the Turkish lira, Brazilian real, and Argentinian peso. Now, let's shift our attention to adjusted operating income. AOI came in at EUR8.6 billion. Of course, that's a significant pullback from the 2023 record EUR24.3 billion, in large part due to marginal profitability in the second half of 2024 when inventory clearing in North America and transition gaps in Europe brought temporary revenue and profitability impacts. We've detailed the headwinds in volume, mix, and pricing already, but industrial costs were also higher by EUR1.5 billion, most of this coming from North America, mainly driven by incremental warranty expense and the side effects of volume reduction. Lastly, we had a EUR2.5 billion negative impact from FX. Let's turn to industrial free cash flow now. Obviously, a very difficult result for the full year of 2024 with EUR6 billion in cash outflow. There are a couple of things I want to point out that are important. First, although the main reason for the lower cash flow was lower AOI, we were also impacted by growth in working capital of nearly EUR5 billion, and we had around EUR1.6 billion in higher capital expenditures. Now, moving forward into 2025, we expect more normalized production schedules to stabilize working capital. In fact, we saw fairly stabilized working capital even in the second half of last year, and, of course, flattish capital expenditures as new product launch cadence normalizes a bit. Now let's review a few specifics on each of our regional segments. In North America, of course, I want to recognize that the inventory reduction actions and the progress repositioning our pricing relative to peers pressured results in 2024, particularly in the second half, but this also sets the region up in a much improved position to start 2025. In Europe, we had an unusual gap in production of our A and B segment products, which reduced second half volumes by well over 100,000 units. The B segment successors are now in production, setting up improved market coverage moving forward. The third engine regions collectively saw a 7% revenue decline but would have been up single-digits excluding the impact of FX translation headwinds. Combined AOI margins were down by only 1 percentage point, still at a healthy 14%. So now that we've reviewed the 2024 performance, let’s take a look forward at 2025. Looking now at the return of capital to shareholders, the company's strong balance sheet allowed it to execute the 2024 return capital plan without interruption. This continued a track record of annual material returns to shareholders that we began back in 2022. For the EUR0.68 per share proposed dividend, the company calibrated the payout at EUR1.7 billion, the top of the 25% to 30% policy and then supplemented this with the EUR300 million enterprise value recognized by the Comau transaction. This delivers on the commitment the company made to separate Comau for the benefit of our shareholders. The balance sheet remains in a very strong position with a 32% ratio of liquidity, slightly above the top of our 25% to 30% target. Given the early stage of our commercial recovery, we don't expect to be doing stock buybacks in the first half of 2025, and we'll return to evaluating them as income and cash flow improve throughout the year. Now, let's look at our initiation of 2025 financial guidance. Steady improvement from a difficult second half of 2024 through the first and second half of '25 is expected as we expand our product portfolio and progress our commercial recovery. On the revenue side, in 2025, we expect the second half of 2025 to be stronger than the first half of 2025, both in the absolute and in year-over-year comparisons, and full-year net revenues are expected to show improvement compared to 2024. Let me address our expectation for strengthening second half revenues, which, of course, is in contrast to the typical seasonality that we run. Europe will benefit in the second half from the full ramp of recent launches of the Smart Car platform products and later introductions of additional C segment products off of our STLA Med. While North America will benefit in the second half from the return of the ICE variance of the Charger, the Ramcharger range extender truck, and the return of the mid-sized Jeep SUV with our first-ever HEV powertrain. In terms of adjusted operating income margin, we're driving to deliver mid-single-digits for the full year of 2025, but with significant variation between the first half and second half. In the first half, we expect the AOI margin to see solid sequential improvement from the second half of 2024 where we ran roughly breakeven but remained in low single-digits. In the second half of the year, we expect larger sequential margin improvement as the growing product portfolio not only enhances our volume potential but also helps us run our manufacturing at a more efficient utilization level. On the cash side, we expect to return to positive industrial free cash flow in 2025 and for those positive flows to come in the second half of the year. In essence, we expect gradual, but solid improvement as 2025 progresses. Finally, I want to talk about something beyond 2025. As I took the CFO job late in 2024 and began engaging with investors and analysts, of course, many of whom are on the call today, I received very clear feedback that more frequent and sometimes more detailed information is needed. I'm very excited to announce that we've begun the process of transitioning to quarterly reporting, which we expect to commence in the first quarter of 2026. The benefits for our stakeholders are clear, particularly in facilitating better comparisons to our most relevant peers, the vast majority of whom are already reporting earnings quarterly. So, let me now turn things back to John to finish.

Thank you, Doug. The future looks promising, as Doug highlighted, compared to where we were in 2024. I want to share some thoughts on our journey. Our industry is actively responding to the challenges that motivated the formation of Stellantis in 2021. Electrification is on the rise, with China being the largest market globally, and we are seeing improvements in our overall market share. We have made considerable progress in our electric and hybrid vehicle offerings. Software is becoming increasingly important, particularly with advancements in AI and autonomous technology. Last year, Tesla introduced its robotaxis, and more recently, BYD unveiled its Eye of God features. This underscores our decision to align software and engineering more closely to expedite the implementation of software applications. Scale is vital; according to 2024 figures, we are now the third largest automaker by units sold, and we view scale as crucial in both established and emerging markets. This is evident in recent alliances, such as the ones announced by GM and Hyundai, along with consolidations taking place in China. We have leveraged our scale effectively, and see further opportunities, such as our joint venture with CATL. Since our merger, we have encountered challenges, including stricter and more varied regulations. We have been actively engaged with the European Commission regarding future policy directions for 2025 and beyond, up to 2035. We were pleased to see the introduction of the Transportation Freedom Act, which we support in the US. We backed President Trump's initiative to promote American manufacturing, resulting in significant investments in the US shortly after he took office. Discussions with D3 members have been productive, and we agree that the negotiation of the USMCA was beneficial in ensuring that US content was included in products made in Canada and Mexico, which should remain free of tariffs. There’s a considerable chance for the current government to enhance American jobs and manufacturing by addressing the loophole that allows roughly 4 million vehicles lacking US content to enter the country. Competition, especially from China, has increased since our merger. I recently returned from a week-long visit with our partners, Leapmotor, and we are excited about their achievements. They reached profitability in Q4 and doubled their sales to EUR300,000 in 2024, marking a successful beginning to our international collaboration. While the challenges and industry dynamics remain constant, we are confident that exciting times lie ahead for our industry, reminiscent of what the pioneers experienced. We believe in Stellantis and the opportunities in front of us because of our remarkable team. Over the past 90 days, I have spent significant time within our organization and across various regions, and our team has been exceptional. I want to take this moment to express my gratitude for their commitment and hard work. I would also like to acknowledge Carlos Tavares for his many contributions to Stellantis, which have laid a strong foundation for our company, especially regarding our people. I want to highlight that the CEO selection process is proceeding as planned. We have outstanding candidates, both internal and external, and discussions have been encouraging as we strive to appoint the best CEO by the first half of 2025. Before we move to your questions, we would like to show you a special advertisement that became the number one spot on YouTube AdBlitz in 2025, achieving 110 million views. This ad features Jeep and aims to showcase our organization's commitment to gaining customer loyalty, driving growth and market share, and reflecting our efforts to provide consumer choice, which is evident in the ad. Additionally, you’ll see the strength of our brands, particularly Jeep, recognized as the most patriotic brand in the United States in 2024. Thank you.

The first question comes from George Galliers from Goldman Sachs. Please go ahead.

Good afternoon, and thank you for taking my questions. John, you did allude to this in your closing comments, but I really wanted to just ask a question about the group. Obviously, Stellantis was formed during a different period when we seemed to be heading towards global convergence on powertrains with high levels of electrification and the risk presented by Chinese OEMs to global car makers was also substantially lower. Obviously, the industry dynamics have changed. The question I really had was operationally, does it still make sense to have a global auto company in a world which is increasingly geopolitically decoupled, where perhaps it doesn't make sense to be one of the largest car players, as that may work against you in this dynamic industry? If there was a clear case to create shareholder value through breaking up the organization, would that be considered or explored?

George, that's a great question. I do believe that what is happening is playing to our strengths. The reason we empower the regions is to ensure we can create regional scale. We believe that our regional scale in the largest markets is actually a significant strength that differentiates us in terms of customer preferences and regulatory requirements. If we look at various aspects of maintaining a global reach, for instance, in software or other attributes of our offerings, those actually benefit from global operations. If we compare ourselves with incumbents like Toyota and Tesla, they're gaining market share while maintaining their global sizes. In our case, we have both regional and global scale that positions us well for the future.

The next question comes from the line of Thomas Besson from Kepler Cheuvreux. Please go ahead.

Thank you very much. I have a question to start, please, on the dynamics of the year. Clearly, growth has become again the key priority for the group, but it seems that for the time being, it's more of a second half story. Could you confirm that? Can you also confirm that absolute inventory levels may be going up, which I think might be better understood by the end of the year while maintaining days of sales? I had the impression that eventually inventories were at an appropriate level. And my follow-up question is linked to a timely topic with tariffs in the USMCA region that you've mentioned in your comments. Could you help us understand the impact on your financial outlook for you as much as for the industry if those tariffs were to be implemented?

Those are two great questions. On the tariffs, discussions are ongoing. It's premature to express any view. We strongly believe that the true opportunity is to close the loophole for 4 million cars sold in America without US content. We are aligned with the D3 in those conversations to ensure that the USMCA agreements made by the Trump administration are respected, valued, and eventually improved. We are indeed preparing various scenarios. It is too early to discuss which scenarios will play out. I also believe that 2025 is a year for us to reach our potential. We have gone through our first chapter focused on creating efficiencies, but we now need to grow. Therefore, 2025 is critical as we pursue product launches: 20 in '24 and 10 in '25, as Doug mentioned. We aim to get back to growth and profitable growth. Regarding the dynamics for H1 and H2, Doug, do you want to address that?

Yes, your question on inventory is good. We always consider inventory relative to the sales pace because it's about managing days supply. As we launch new products, we expect to see absolute inventories ramp up towards the year's end as these vehicles enter the European market and sales pace increases. However, we don't expect significant increases even on an absolute level; our focus is on maintaining days supply. In North America, we expect similar dynamics. New HD pickups will launch in the first quarter. As for the second half, we're excited about the Cherokee replacement coming with our first HEV powertrain. We also anticipate a slight pickup in absolute inventory numbers but will aim to keep days supply reasonable.

Our next question comes from the line of Daniel Roeska from Bernstein Research. Please go ahead.

Hi, good afternoon to all. Thanks for taking my questions. Focusing on the US a bit more, you've lost about 5% of market share in the US since 2019. Your production plans for '25 seem to aim to recapture about 3% to 4% of market share, which is higher than any OEM has managed in the US. Other than new models, what additional measures are your executive team considering to achieve this aggressive market share gain in a relatively flat US market this year?

That's not what we're aiming to achieve. I don't know how you arrived at that, but that is definitely not our expectation. We believe that a combination of great products, strong trust with our dealers, effective marketing spending, and the strength of our organization is what will truly drive traction. If we look at January, it's positive on the client side. We still need to do work on fleets, but we are not pursuing aggressive gains as you've suggested. '25 would be extraordinary as a year if we did achieve that level.

To address your question about production planning, we regularly adjust our production levels based on market dynamics. When we consider the price repositioning we've done in the US market in the second half, we have established a more competitive pricing position than we had in the first half. Our plans to grow share are backed by new products and increased marketing presence. The ads you saw today, particularly the great Jeep advertisement, are part of our strategy to bolster our share of voice. We believe this combination of actions will help us regain market share, but not as aggressively as previously suggested.

The next question comes from the line of Patrick Hummel from UBS. Please go ahead.

Thank you. Hi, everybody. My first question goes to Doug. We've discussed your volume expectations for 2025 and the impact of the new model launches. Could you elaborate on the other key building blocks in the AOI bridge? What about pricing and costs? Can you share your expectations, please? My second question goes to John. You've stated this year must be one of growth, but how long can you give the company to fully return to its potential and what do you consider that potential in terms of AOI margin and free cash flow? Is it still a double-digit AOI margin, EUR10 billion in free cash flow? What do you think the company should be capable of delivering? Do you think the company needs to invest more as it fell short under Tavares' leadership, or is that not an issue?

I'll start with your comments on AOI and its development. In North America, we expect to operate in low single-digit margins in the first half, with improved margins in the second half. In Europe, there are significant opportunities for improvement over the 4.1% margin we reported for 2024. Referring to your inquiry about pricing and costs, the market expectations in North America suggest a 1% to 2% pricing headwind. At Stellantis, our second half recalibrations position us better in terms of competitiveness. The second half will address some pricing pressures and new products will support margin improvements. Regarding costs, we see potential in direct material costs and technical enhancements on TPC that can help our cost structure.

To reinforce Doug's comments, '25 is the year we need to return to profitable growth, which includes generating more profits and free cash flow. That's our primary focus. Achieving that outcome will pave the way for our new CEO to leverage our talented team for the full potential of Stellantis.

Our next question comes from the line of Jose Asumendi from JPMorgan. Please go ahead.

Thank you very much, Jose from JPMorgan. A couple of questions, please. John, you've been very involved with the management team in the US executing the turnaround plan for 2025. Are there elements of how the company operates, how decisions are made, or even financial planning and inventory side that you are looking to change? Let me thank you for the step to improve disclosure with quarterly reporting as we move into 2026. My second question, Doug, if you could give us more details on the financial planning for Europe, specifically on the key drivers for volume and pricing, and how we should look at the margins for the first half versus the second half. Thank you.

Thank you, Jose. Building trust is vital, listening is key. We have listened and that’s reflected in Doug and Ed's efforts to establish quarterly progress on our financial reporting by 2026. Our organization is more regionally empowered, reflecting our need to be closer to customers and to resolve issues promptly. This regional focus will continue moving forward with our next CEO. Our partnership with Leapmotor is solid, and we’re optimistic about what we can achieve together in China. We’re proud of the progress we've made since our inception, especially the market presence we've built.

To address your question, Jose, we expect a much stronger second half in Europe than the first half. The vehicles we discussed earlier, like the sister cars on the Smart Car platform, have just commenced production and will be hitting the market soon. We anticipate that their introduction will significantly contribute to sales in the second half, alongside other products. Therefore, you can expect a much stronger performance in the second half, reflected in both margins and cash positions.

Our next question comes from the line of Philippe Houchois from Jefferies. Please go ahead.

Yes, thank you very much and good afternoon. I'm looking to revisit market share and the introduction of new capacity. Stellantis has lost approximately 5 points of market share in Europe and North America since its inception. I wonder how you balance the costs associated with rebuilding market share, which I assume impact positioning and pricing, while considering the necessary costs associated with reducing excess capacity—an inefficiency inherited from the past. How do you contemplate these issues in balancing your actions?

Philippe, that's a very relevant question. Our focus for 2025 is to gain market share, driven by our product lineup. We intend to launch 30 new products between '24 and '25. We believe that by prioritizing high-quality products, marketing to our customers, and empowering our regional teams, we will effectively manage our capacity without incurring excessive costs. As we sell more cars, we can better utilize our plants, and we want to ensure that our great products reach our customers. That's our primary focus.

On this note, when should we expect to see an improvement in retail market share? Many investors observe an unattractive retail market share in both Europe and the US and are keen to understand when we might see positive developments? Is that expected in a few months or longer?

We're observing positive signs. For instance, in January, we saw positive developments on the retail side in the US. Key markets like Italy and France show progress in Europe as well. Market share typically shifts between losers and gainers, and it can adjust quickly. We have confidence in our product lineup and the ability of our teams to engage with customers positively.

Following up on Philippe's comments, it's still early in the year, and we only have January's results. We've made considerable progress in Europe. Our strategy is to rehabilitate our market presence while rolling out exciting new products. Feedback from our dealers highlights renewed confidence with the increase in orders, but we must maintain a cautious approach as execution remains our main focus moving forward.

Our next question comes from the line of Tim Rokossa from Deutsche Bank. Please go ahead.

Thank you very much, Tim from Deutsche Bank. I have two questions please as well. Firstly, Doug, could you clarify the adjustments we see in H2? Regarding the EUR1.2 billion impairment for Maserati, what can you tell us? How should we think about those adjustments going forward? Secondly, John, while Carlos has made significant operational efficiencies, OEMs appear to be extending their peak R&D investment targets. Do you believe Stellantis' R&D levels are sufficient? Should the company catch up in certain areas, or is this not a concern?

Certainly, Tim. You raise a valid point regarding the adjustments, and indeed, we had several one-time items that significantly impacted our overall results. In H2, we saw EUR1.6 billion in restructuring costs related to workforce reductions primarily in Europe and North America. We expect lower levels of workforce reductions going forward and maintain a commitment to prudence. Additionally, we recognized EUR800 million related to the expansion of the Takata airbag recall campaign, and we believe this will conclude going forward. The EUR1.8 billion in write-downs relates to capitalized platforms and goodwill for Maserati, with the EUR1.2 billion being part of the non-goodwill aspect. As we continue to evaluate the luxury market's transition to electrification, we will present the associated financials accurately. Lastly, we had around EUR600 million in service contracts reviewed with a lower profitability outlook. These are adjustments specific to prior commitments and not indicative of future expectations. Overall, we had about EUR2.3 billion in tax benefits due to recognizing a deferred tax asset in Brazil, which was a positive item.

Tim, over the past four years, we've invested heavily, and those investments are evident in our product introductions for 2024 and those forthcoming. We have flexibly directed investments to adapt to the changing regulatory context, while covering a wide array of powertrains. We aim to provide broader market coverage, and I believe our investments align well with Stellantis' current requirements.

The last question we will be taking on this call comes from the line of Stuart Pearson from BNP Paribas. Stuart, please refrain yourself to one question only. Please go ahead.

Thank you. I'll try to keep it brief. Doug, can you confirm your commitment to achieving positive free cash flow excluding working capital? Secondly, what are the implications of the Tesla pooling deal for your cash flow, and is that tied to events happening or is it a firm commitment regardless? Lastly, John, regarding the CEO search, can you shed some light on your criteria for the next CEO and whether you’re considering candidates more from Silicon Valley or Michigan?

Absolutely, yes. We are focusing on achieving significant positive free cash flow excluding working capital. We expect working capital to stabilize, as observed in the latter part of fiscal year 2024. Regarding the credit pooling arrangement, we have entered an arrangement in public view in Europe, which includes Tesla and Leapmotor. The pooling agreements lead to cash flow benefits set to be realized in the following year once the credits are confirmed. The precise timing revolves around the credit's generation and confirmation.

As for the CEO search process, we are thrilled with the progress made. Our candidates demonstrate strong leadership qualities, cultural adaptability, and financial acumen along with a solid technology understanding. Our goal is to find a leader who can work collaboratively across our global regions. The search is designed to identify the best fit for Stellantis; thus, we are considering talent from diverse backgrounds, including both Silicon Valley and Michigan. We are confident about appointing a new CEO in the first half of 2025.

Thank you, Stuart.