Stellantis N.V. Q3 FY2025 Earnings Call

Ladies and gentlemen, welcome to the Stellantis Third Quarter 2025 Shipments and Revenues Call. I will now hand you over to your host, Mr. Ed Ditmire, Head of Investor Relations at Stellantis. Mr. Ditmire, please go ahead.

Thank you. Hello, everyone, and thank you for joining us today as we review Stellantis' third quarter 2025 shipments and revenues. Earlier today, the presentation material 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 Antonio Filosa, Chief Executive Officer; and Joao Laranjo, Chief Financial Officer. After their prepared remarks, Antonio and Joao 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 during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on Page 2 of today's presentation. As customary, the call will be governed by that language. Now I'll hand over the call to Antonio Filosa, Chief Executive Officer, Stellantis.

Well, thank you, Ed, and hello, everyone, and thank you all for joining us today. First of all, please allow me to recognize our teammates that are struggling with the effects of the terrible hurricane in Jamaica and surrounding areas. We are very close to them. So let's get started. There are three important topics we want to cover today. First, our commercial plan is progressing with a third-quarter return to top-line growth. Second, I want to cover our recently announced $13 billion investment in our U.S. manufacturing and product to explain the new opportunities it opens. And third, Joao will take you through the numbers we are reporting and give you our assessment of the second half 2025 outlook. So let's begin with a summary overview of the third quarter. First, let's look at the performance, which improved as we progressed our commercial trends. Consolidated shipments and net revenue both increased 13% compared to the prior year, and we delivered a global sales performance that was 4% higher year-over-year. Net sales performance included a sequential increase in market share in North America and even stronger trends in the United States. At the same time, we also saw some share contraction in Europe for reasons I will explain shortly. Second, we announced our $13 billion U.S. investment program, which directs significant capital into our U.S. products, plants, and production. For customers, this means we are reentering segments where we have been missing for too long and extending powertrain choices in ways we know our customers love. Lastly, we are confirming our second half 2025 financial guidance, which implies continued sequential improvement, and at the same time, we'll continue what we started in the first half to structure our business for profitable growth. Now let's go into more details on our commercial progress. First, products. This year, we set out a plan to launch ten major new products. In the third quarter, we launched the fifth and the sixth of those, the Citroen C5 Aircross and the DS N°8, both on the rapidly scaling STLA Medium platform. We have four important remaining products scheduled to launch very soon, two in North America and two in Europe. I will detail why each can be very impactful. So let's look at the two launches in North America. The Jeep Cherokee marks our return to the mid-sized SUV market in the U.S., the largest vehicle segment, accounting for around 1/5 of total volume of the industry. The Jeep Cherokee will bring us back into that huge mid-SUV segment with a very competitive design and capabilities. For example, the new Cherokee has significantly more room and the brand's first-ever full hybrid powertrain, dramatically boosting fuel efficiency and range. Moving to Dodge, we will soon begin production of the exciting ICE Charger SIXPACK in both two and four-door configurations after a more than two-year absence. The initial Scat Pack high output two-door frames sold out the entire 2026 model year when we opened for orders. Now let's go to Europe. The Jeep Compass has had considerable success in the past. This new generation Compass built on the STLA Medium platform features three powertrain options: BEV, PHEV, and hybrids for the first time ever. I want to highlight the Fiat 500 hybrid, one especially close to my heart as an Italian, which will enable this very successful nameplate to appeal to a much wider audience than it could as a BEV-only product. Now let's look closer at North America. This was a very exciting quarter with market share in the U.S. starting to improve, a strengthened order book, and strong execution of the new product pipeline. U.S. sales rose 6% versus the prior year, with several Jeep products, Wrangler, Gladiator, and Wagoneer showing solid gains. Our new Ram Express 1500 HEMI V-8 variants began shipping. These products are likely to show a bigger sales impact in the fourth quarter as availability on dealer lots increases. Since the announcement, we have received more than 43,000 dealer orders. In the fourth quarter, we are launching our updated Jeep Grand Wagoneer large SUV and the all-new Jeep Cherokee mid-size SUV. So our momentum in the U.S. is starting to pick up even before the very important new U.S. investment program that I will discuss shortly. Now to Europe. Here, we are making solid progress executing the product plan. But the context is tough, with softer volumes in the French, Italian, and light commercial vehicle markets, where we are the biggest player due primarily to these market mix headwinds. Our third quarter EU30 market share was down 70 basis points versus the prior year. We are taking the necessary steps to earn that back. In the A segment, we will be introducing the Fiat 500 hybrids, where we see significant pent-up demand, especially in Italy. In the B segment, we are continuing to ramp up the new smart car platform products. Next, we will launch an ICE version of the Fiat Grande Panda. In the C segment, we will launch the Jeep Compass soon. At the same time, together with other members of the ACEA, we are heavily engaged with European policymakers to define and implement urgently needed reforms to revitalize the European auto industry. I believe there is a strong cross-industry consensus that the rules need to change and change quickly. Last quarter highlighted six near-term opportunities we had to improve profitability, spending on new products, changes for the new model year vehicles, and improved manufacturing and operational efficiencies. I am happy to report we are making good progress. The return of the HEMI V-8 to the RAM 1500 light-duty trucks in the third quarter has delighted many of our customers. Next, SRT. We will bring an initial SRT model, the Dodge Durango SRT Hellcat to market in the fourth quarter. This will be the first of several SRT products that we will launch in the coming years. We pointed out the ramping up of the four smart car platform products in Europe. In the third quarter, we increased production by 57,000 units year-over-year, which is exciting because we have approximately 120,000 orders for these vehicles in our order book. Next, I want to recognize our global Pro One commercial vehicle organization. This is a critical differentiation for us. Our grid commercial vehicle products represent roughly 30% of our revenues in aggregate across the regions. In Europe, we are number one in commercial vehicles with a solid 28% share. We are expanding our in-house customization options. In South America, we are also number one in commercial vehicles with a 31% share. We are expanding how we cover the mid-size pickup segment with the newly launched Ram Dakota, and in the Middle East and Africa, where we have a 20% share, we are launching local production of compact Fiat vehicles in Algeria, a market where we have especially strong share leadership. In North America, we have a 12% share. We have returned the Ram 1500 HEMI to the lineup with more product actions to come. Let me touch briefly on a topic where we have some exciting announcements recently. We are excited about how technology and other dynamics are evolving to bring robotaxis closer to commercial viability, and we have announced a new collaboration with incredible partners. First, in October, we announced plans for Pony.ai to adopt our fully electric LCV and jointly develop a program to launch a large robotaxi people-mover. The first prototype vehicles have already begun testing in Luxembourg. This week, we announced a collaboration with NVIDIA, Uber, and Foxconn to build fleets of robotaxis based on our AEV-ready platforms, LCV, and STLA Small targeting U.S. cities first. We are extremely proud of the fact that these outstanding partners recognize the advanced capabilities built into our platforms, and I am convinced we can deliver substantial value in the emerging robotaxi market and space. Now let's turn to our exciting investment news. Since I took the CEO role, I made it clear inside and outside the company that the U.S. is a key priority for our success. Because when we are strong in the U.S., we are stronger and better as a company everywhere. The $13 billion we will invest in the U.S. in the next four years is an investment in growth. This is the largest single investment in our history and a proud commitment to our U.S. people, plants, products, and communities. This investment will support the introduction of five all-new vehicles to U.S. plants and critically increase the level of U.S. production by 50%. I want to recognize the administration for their important focus on making pragmatic changes to regulations and tariffs. This is truly making a difference. So let's look closer at how this investment enlarges a lot of opportunities for us. First, Jeep. Jeep is showing gradual improvement in the U.S. in 2025, with quarterly sales growth of 11%, nearly double the U.S. market growth of 6%. We also have an exciting fourth quarter planned with an all-new Cherokee and refreshed Grand Cherokee and Grand Wagoneer. To build on that momentum, the new U.S. investment includes plans to manufacture, Jeep Compass and Jeep Cherokee in our Belvidere plant. This is critical to our strong offensive in the sub-$40K U.S. dollar market. We are also investing to bring new technologies and other strong product actions to the iconic Jeep Wrangler and Jeep Gladiator. Our ability to serve the mid-sized SUV segment, the largest in the U.S. car market at 20% of total industry volumes, is extended in a powerful way with Jeep Cherokee and a very unique trade-rated Recon, which arrives in 2026. Overall, we are substantially stepping up our market coverage. The lineup is incredibly fresh and exciting, and our manufacturing sites will be ready to support higher demand. Now, Ram. I've spoken already about the strong product actions at Ram in 2025, which have helped us drive year-to-date retail sales 26% higher than last year. Now with the U.S. investment, we are opening up additional growth. First, we are putting in place a much more comprehensive product range. We have now set the plan to return Ram by 2028 to both the mid-sized truck and large SUV segment. Second, we are leading on innovation. With this new large SUV, the Ram lineup will include two models alongside the Ram 1500 REV, both set to feature our unique and very innovative range-standard powertrain. Lastly, Ram will be showing even more of its trademark passion with two new SRT performance products to be rebuilt in the coming months, each with utterly distinct value propositions. We are building the most comprehensive, the most innovative, the most passionate Ram lineup ever. Now over to Joao, who will take you through the numbers for the quarter. Thank you for now.

Thank you, Antonio. Good afternoon, and good morning, everyone. It's my pleasure to be speaking to you for the first time as Stellantis's new CFO. So let's start with the top line figures. In the third quarter of 2025, Stellantis saw a return to year-over-year top line growth. This ended a tough period of seven quarters of year-over-year declines. Consolidated shipments of 1.3 million units were up 13% or 152,000 units. Most of the increase came from a 35% improvement in North America. That increase mainly reflects the benefits of normalized inventory dynamics. To elaborate, the prior year shipments were heavily impacted by the second half of 2024 U.S. dealer inventory reduction actions, which entailed substantial factory downtime. Net revenues of EUR 37.2 billion were also up 13% compared to the third quarter of 2024. That was driven by increases in North America, Europe, and the Middle East and Africa. Let's turn to the revenue bridge to understand the 13% revenue increase in more detail. The improvement was driven mainly by the volume increase in North America and Europe. The 13% revenue increase year-over-year was driven mainly by the 13% volume increase. Other factors, including positive mix and pricing, were offset by FX headwinds. On volumes, in addition to the improvement of 104,000 units reported by North America, we also saw a net total of 48,000 units increased from the other regions with positive contributions in Europe and the Middle East and Africa, partially offset by a moderate decline in South America. Next, pricing was up 2% compared to the third quarter last year. This was driven by gains in North America, where a roughly 4% increase reflected a low prior year comparison point when higher incentives to clear aged inventory were in place. We are benefiting in 2025 from a strong inventory discipline. We continue to see ongoing pricing headwinds in Europe, but positive pricing dynamics in South America and the Middle East and Africa. FX remained a material headwind in the third quarter, with EUR 1.7 billion negative impact at the group level. This reflects the devaluation of the U.S. dollar, Turkish lira, and Brazilian Riyal versus the Euro. The U.S. dollar impact was by far the largest part of this. Now let's move to our regional segments. The third quarter saw year-over-year volume and net revenue improvements in North America, Europe, and the Middle East and Africa. Jeep Wrangler and Ram light-duty nameplates in particular drove volume improvement for North America. Europe saw the ongoing ramp-up of European smart car products, the second quarter of 2025, which helped sales. At the same time, we are seeing generally subdued registration volumes in Europe year-to-date. Middle East and Africa had a strong shipment increase of 21% driven mostly by higher volumes in Algeria, where the company has significantly raised its local production. South America revenue was down 5%. This is in part due to tough comps compared to the third quarter of 2024 when Stellantis benefited from a recovery in Brazilian shipments that had been delayed by the second quarter of 2024 flood in Rio Grande do Sul. Turning now to inventories. The stock levels remain well managed at the end of the third quarter of 2025. Total inventories rose 4% sequentially compared to the end of the second quarter. That is primarily due to higher stock in North America, mainly to the ramp-up of any V-8 Ram 1500. U.S. dealer inventory days of sale remained in the mid-60s, consistent with where we ended 2024. Moving forward, we expect to continue to see some absolute increase sequentially at the group level as we continue expanding the product lineup in the market. While the relationship to sales will remain relatively stable. Let me end this section with our 2025 guidance, which we are confirming in all respects. We expect the second half of 2025 to continue the third quarter's return to year-over-year growth and to be above first half 2025 levels; stronger volumes and their contribution to improved industrial efficiency will put us in a position to deliver low single-digit adjusted operating income margin in the second half, and we are working to deliver sequentially improved industrial free cash flow. Please note also, we have refined our projection for net tariff expenses for 2025, now approximately EUR 1 billion compared to the prior EUR 1.5 billion. There are a few other things I'd like to touch on which, while they are currently expected to have limited impact on the aforementioned second half guidance metrics, will likely affect other aspects of our second half financial results. First, as we indicated in July, we are engaged in the ongoing process of reviewing all aspects of the business as part of updating our strategic plan. This will likely lead to further charges in the second half. We expect that a large portion of the charges will be excluded from AOI to the extent that they are not indicative of our ongoing operations. Second, we are in the process of updating how we estimate warranty costs. Our historical model was in line with industry practice and worked well. However, in recent periods, we've experienced cost inflation. While this change in estimate does not change the actual cash cost or their time, it is likely to result in a one-time charge, which would increase the level of balance sheet reserves. It is not expected to materially impact future period profitability compared to the 2025 run rate. Now I'll hand the call back to Antonio for some closing remarks.

Thank you, Joao. Before opening to your questions, let me recap the key points from today's presentation. The third quarter revenue and shipment performances give an early signal that our actions are beginning to have a positive impact. You can see that in quarter three, we continued to accelerate the actions we started in January to correct past strategic and operational decisions. We quickly changed our organizational structure to restore proximity to our customers, dealers, and suppliers. We reconnected with our governments and regulators, and we took important decisions such as the product actions and major investments we discussed today that have restored the freedom of choice to the very heart of our strategy. Lastly, confirming our second half guidance signals our belief in further steady sequential progress quarter-by-quarter. That concludes our opening remarks. And so I would like to ask our operator to open the line for your questions. Thank you.

The next question comes from José Asumendi from JPMorgan.

A couple of questions, please. Antonio, certainly very exciting product launches are coming through in North America and product refreshes. I was wondering if you could talk a little bit about how everything comes together when it comes to improvement of production capacity, utilization of the plants, and ultimately also improving pricing power. I know that it's a question that goes into 2026. But as we think about the short-term and maybe longer-term, what are you thinking in terms of those two metrics? And then the second question, Joao, again, most welcome. I was wondering if you could just give us a little bit your thoughts with regards to the key levers to improve free cash generation maybe in the second half of the year, where you are hinting towards an improvement. Is there an opportunity to even generate cash in the second half? Or if not, how do we think about the levers of the improvement in the second half versus the first half?

Thank you, José, for your questions. So I will take the first part of your questions, and then I will leave to Joao the second part of your question. So let me start, please, by saying that today in quarter three, we celebrate a return to top-line growth, both in shipments and in revenue after seven quarters of shipments and revenue decline. Since your first part of the question was around pricing power, we celebrate a favorable pricing for the first quarter after four quarters in a row of unfavorable pricing. We are still very competitive in the market. So we believe we are very well positioned for future growth. The way we want to address our future growth, even in pricing power, is through a strategy that we have been setting since the beginning of the year, and we are implementing since then, that is aimed to correct past strategic decisions. Our major issues were product gaps, both in North America and Europe, and we are implementing strong corrections in the short-term and mid-term around those. This is the case, for instance, of the re-introduction of the V-8 engine of Ram 1500, which is a big volume opportunity but also very accretive on profit per unit. This is the case of the relaunch of the ICE engine for the muscle cars of Dodge, again, both opportunity and profit opportunity, and this is the case of the launch of Jeep Cherokee in the largest individual segment in the world, which is the U.S. mid-SUV segment that accounts for 20% of the entire industry in the U.S. This is how we want to correct the past strategic decision, fulfill our product lineup with products that we know our customers want and grow both in volume and profit. This is the first part of my answer, and I will leave Joao to answer the second.

Thank you, Antonio and hi José. So on your second question about the biggest driver for the free cash flow improvement in the second half, it's primarily volume growth in North America. That is the primary driver for the improvement and underscores the importance of continuing to improve sales and volumes across our machine.

The next question comes from Philippe Houchois from Jefferies.

I have two questions. One is on the free cash flow dynamics. Because I understand the improvement from H1 to H2, you had negative EUR 3 billion in the first half. It seems the market seems to be anticipating being EUR 1 billion and EUR 2 billion negative in the second half. But I just want to clarify, in the second half compared to the first half, the plant utilization both in the U.S. and in North America and in Europe is probably up. And then trying to understand sequentially, as well as long as you have sequential improvement in your production, which I think is the case. And then normally, working capital should be a significant contributor to free cash or to cash generation, notably under the payables at the year-end. If you can help me make sure that I'm not wrong in our assumptions or I know you're not going to tell us what the cash flow is going to be second half. I'm not asking, just to understand the dynamics, that would be helpful. The second question is on tariffs. Again, thank you for clarifying that the one billion is lower. Some of that, I guess, is the timing of the tariff on the full-size pickup. 2026 normally should be higher tariff because you are going to have 12 months of Ram in Mexico, and you're going to have the relaunch of the Cherokee. Then in 2027, you start having the benefit of reshoring to more production to North America, to the U.S. specifically, both vehicles and engines. Is it right to assume that 2027, I know it's far away, but understand the dynamics, the 2027 tariff is going to be lower than '26 and potentially going back to the level of 2025. If you could help me understand that, that would be great.

Yes, for sure. Thanks, Philippe. On your first question on the free cash flow, the way that you're thinking is correct. The only piece of information is the second half versus the first half. The region where we're going to see primarily the volume improvement is North America. But other than that, your rationale is correct. On tariffs, I'll leave Antonio to answer the question.

So on tariff, my answer is the following. Our new strategy that we have been starting to implement since January has been meant to grow in our most important and largest market, which is the U.S., but also has a positive side effect of reducing exposure against tariffs, as you said, in the next years. Obviously, many things around this topic will happen, including the final settlement of USMCA, and we'll be ready to manage this new variable of our business equation as we are doing already. Thank you.

The next question comes from Henning Cosman from Barclays Auto.

Can I just ask you a little bit higher level, your predecessor management had given us a bit of a steer saying that you've abandoned all-weather above 10% margin company narrative. I think the indication then became more like 6% to 8%, perhaps in favor of growing volume, growing market share. I just wanted to ask again, if you're still endorsing this kind of narrative now as a new, now complete management team and what the underlying prerequisites for this are? Does that still imply something like 10% U.S. market share, 20% European market share? Does it require incrementally positive pricing from current levels? How does the reshoring in the U.S. fit into that? I would imagine it would come with higher depreciation; it will probably come with higher labor costs. If you could just give us a sort of updated framework where you see the company going over the next few years in a sort of steady state. And then secondly, perhaps more again with respect to near-term free cash flow dynamics. I just wanted to clarify, I wasn't sure in response to Philippe's earlier question, if you endorsed that minus EUR 1 billion to minus EUR 2 billion, if you didn't mean to make any statement in that respect.

So I'll take this second piece. No, I was not referring to the number, but the dynamics. The guidance that we have here is improvement versus H1, and that's what we are confirming. Thanks for asking for that clarification.

Thank you, Henning. I will address the first part of your important question, and I appreciate it. We are already implementing a growth strategy that began in January, which will provide the company with consistent improvement in all business KPIs each quarter. This is our primary objective, and it is what we intend to achieve. We recognize that a 6% to 8% AOI business is a realistic goal for the medium to long term for this company, and we will hold a Capital Market Day to discuss these objectives in more detail. Our main focus now is to deliver on our plan, which is to achieve consistent quarter-by-quarter improvement in all business KPIs.

The next question comes from Thomas Besson from Kepler Cheuvreux.

I have two questions, please. First, for Antonio, could you provide more details about the order intake? Can you elaborate on the reasons for the increased U.S. order intake? What has been the impact of relaunching HEMI on Q3 volumes and how has the Cherokee been received since the order intake opened? What benefits do you anticipate in Q4 from this? When can we expect to see the full impact of these new products on your registration figures? Additionally, could you assess the overall U.S. market for Q4? GM and Ford have mentioned a 16 million market, which would be helpful. The second question is likely for Joao. Regarding warranty costs and provision, you mentioned a change in methodology leading to some one-off charges. Can you provide an overview of the expected recall costs for 2025 compared to 2024 and 2023? Also, does setting up this provision using the new approach for assessing future recall costs have any cash impact on the second half of the year? Finally, could you comment on whether there are different methodologies used by region or if costs vary significantly between North America and Europe?

Thank you, Thomas, and I will take the first part of your important questions, and I will leave Joao to answer in the second part. Thank you for the two questions. The dynamics of order collection in the U.S. is going very well. Actually, it has been almost twelve months in a row that we have improved our order portfolio month-over-month. The new products have been received very strongly. For instance, we have accumulated more than 43,000 orders since we announced the Ram V-8 legendary HEMI return. After announcing the Dodge muscle car charger with an ICE variant, we received the orders needed to close the full production for the next model year. The Jeep Cherokee announcement has been received very well, both by customers, dealers, and journalists. We are very pleased to see our order book strengthening month-over-month, and this is very important to build upon for next year. For your question about what industry we see next year, we see a market that can be around 16.4 million to 16.5 million units for the U.S. This is my answer, and I will leave Joao answering to the second question you did. Thank you.

On the warranty, the first thing to note is that the methodology we are reviewing would mainly affect the U.S. and Europe. The potential adjustments will be a noncash provision in 2025. The total warranty cost for the group in 2023 was EUR 8.9 billion. In 2024, the balance sheet for warranty was EUR 9.3 billion. Regarding the specifics of the recalls, we can discuss that offline since I don't have the numbers available right now.

The next question comes from Patrick Hummel from UBS.

Also, two questions from my end. The first one, Joao, your predecessor said that the second half AOI in North America should be positive. Now this is nowhere in the deck; you had a good volume balance over the first half in North America. So I was just wondering if that statement is still valid that we should expect a positive AOI for North America in the second half? And my second question relates to free cash generation of the business. I appreciate today is not guidance day. But if we qualitatively think about the puts and takes for the cash flow as we're heading into next year, is it fair to say they are going to be higher investments year-over-year because you've got that $13 billion plan for the U.S., I guess some of that CapEx is going to be incremental, and I'm still wondering if there is a little trailing effect on free cash flow of any bigger further one-off announcements you might have in the second half of this year. So would you say with confidence that next year's free cash flow should be in positive free territory? Or is that too early to say?

Yes. No, thank you for the question, Pat. So first on North America, we are not providing guidance by region. But we are very focused on sequentially improving quarter-by-quarter, as Antonio mentioned. And then on free cash flow, despite the investments that we have announced in the U.S., we continue to focus on maintaining investments around 8% of our revenue going forward. In relation to the adjustments that we are working on our strategic plan, we are still going through them and assessing the amount. I don't have final figures right now to understand the impacts for next year, and we'll provide an update on that when we have the financials for the full year.

The next question comes from Michael Foundoukidis from ODDO BHF.

Two questions on my side. First one on the U.S. investments you recently announced with plans to significantly increase vehicle production in the country. This could have some implications on your cost structure, I guess, and probably for your peers as well, if they decide to go on the same path. Would you be eager to have your view on this? And do you believe that the pricing environment in the U.S. could be negative regarding new vehicle demand going forward? Or do you think that you can get some substantial efficiency or competitiveness gains to offset these higher costs? And then second question on volumes. Any comments you could share on October or maybe Q4 trends, especially in the U.S. You highlighted several times during your presentation that North American volumes are the key driver of the expected earnings improvement. So would you expect most of this improved momentum to come, let's say, in the next six to twelve months to be driven by retail or fleets or both equally?

Thank you very much, Michael, for your two questions, and I will answer both of them. So on the volume, which is the latest question that you did on October and quarter four, yes. We see improvement in volume in North America, mainly the U.S., because we will see the first positive impact of the launches. The V-8 Ram 1500 is hitting now the dealer lots and is turning very fast, driven by a very strong pent-up demand. We will launch production on Jeep Cherokee by the end of quarter four. So the first units will get to dealer lots in that period. Obviously, the major positive impact will start being visible in quarter one next year when the largest portion of first unit builds will hit the U.S. dealer lot. The same story on the door charger ICE engine equipped that will be launching production in the next months. Few units will get to dealer lots by the end of the year. Most of them will be hitting the dealer lots by quarter one next year. But yes, volumes will increase in the U.S. with an increase in North America. The first part of your question is about the investment that we are deploying in U.S. products and plants. If it will have an impact on profitability, number one, we see a pricing scenario for the U.S. which is stable and this is good news for us. Number two, we are working on cost efficiencies globally and obviously, in North American plants and U.S. plants. Number three, our investment is meant to grow in the largest and most important market that we manage, so we see just positive impacts out of it. Thank you very much for your question.

The next question comes from Horst Schneider from Bank of America.

The first one relates to Europe. A colleague asked already about your expectation for the North American margins. In that context, I am asking about Europe because you said in the H1 call that you aim to improve margins in Europe. You just said in the U.S. also you want to improve margins semester-over-semester. Can you confirm that also for Europe maybe? Because my impression is that Europe is getting slightly worse because you talk about increasing incentives and the back share is increasing. Therefore, my question is what implication has that got on European profitability? Then the second question that I have is regarding working capital. Maybe you can explain how you expect working capital basically to develop into year-end? I would expect inventories to increase slightly. Maybe you can quantify that, and trade payables also to increase. But in that context, with this Nexperia chip shortage, maybe you can say how your plans could be affected by that. If there's any supply disruption coming up, if that plan would be at risk?

Thank you, Horst, for your clear three questions. So let me start answering with the European parts. In Europe, we intend to focus on two things: earn back the market share that we have been declining a little bit, and this is primarily driven by three product actions. Again, product is at the core of our new strategy that we are implementing. The first is in the A segment. In the A segment, we launched production at the end of November for Fiat 500 hybrids. This is first a big volume opportunity, mainly in Italy. Second, profit per unit accretive as the hybrid version of the Fiat 500 will generate a better profit per unit than the only BEV version. The second product offensive that we have in Europe is around the B segment, where we see a big volume opportunity in ramping up quicker the four products out of a smart car platform. Again, we improved our production by 57,000 units year-over-year due to a very strong order book that so far, consists of 120,000 units orders collected in those four important nameplates. This is for sure a big volume opportunity that we have in front of us. The third product action is about the launch of Jeep Compass out of the Melfi plant in Italy. The Jeep Compass will be our strong player in the C SUV segment in Europe, which is a big volume opportunity for us, but also a profit opportunity for us. We see a very nice future of volume growth in Europe, but we also see some important profit improvement driven by mix of models and mix of trims per each model. On Europe, I also want to comment on the regulatory framework that we see today. We see in Europe a regulatory framework that will change quickly, and we have been working intensely with the ACEA organization to promote our ideas of flexibility that we want to introduce in this regulatory framework. I have been very vocal in the press with stakeholders about the four major points of our agenda and the flexibilities we would like to introduce. So on the $13 billion investment in the U.S., which I believe is the second part of your questions, we will use that to leverage the industrial capacity we have in North America everywhere, for sure in the U.S., but also elsewhere, where we are not announcing any planned shutdown.

Horst, on the working capital, we do expect the dynamics you mentioned due to the increase of volumes in North America, as I mentioned previously. Obviously, any production disruption from now to the end of the year would have a large working capital impact because of the negative working capital position we have, right, as we usually collect cash as we invoice the vehicles and have payment terms with suppliers.

And your supply is safe until then? Volkswagen said the supply is safe until end of next week. Is it the same for you, that visibility is just poor for you as well?

We are closely monitoring the chip situation from Nexperia. We have a dedicated team in the building focused on this issue. Each day, we are implementing actions and projects to extend our supply period. This is a daily management effort addressing what is a widespread global challenge in the industry.

The next question comes from Emmanuel Rosner from Wolfe Research.

The first one is just a point of clarification. These charges that you're taking in the second half, both for, I guess, turnaround actions but also for warranty. Can you just confirm again if there's any sort of cash impact that you should be thinking about associated with it and whether that would be included in the free cash flow reiterated guidance? And then just maybe a little bit longer term, with these changes in U.S. regulations and in particular, a significant easing in the emissions regulations, what kind of opportunity does that provide for you? What kind of upside does that unlock one of your three competitors on the record saying that this is a multi-billion dollar opportunity. How would you plan to take advantage of it?

Very good. Thank you, Emmanuel for your two questions. I will start answering, and then I will leave the stage to Joao. Obviously, the new regulations that we believe are very pragmatic and are giving back the U.S. customers their freedom of choice. We welcome them very much. We believe those represent good news for the short, mid, and long term, and we intend to explore all the value that we can extract out of those changes through the mix in our product offer that we are implementing since January. Freedom of choice is the mantra of our strategy. We are still developing beautiful BEV vehicles for the customers that will prefer a BEV. That’s why we are launching the Jeep Recon very soon in the first half of 2026. At the same time, we are enlarging our lineup with ICE and hybrid introductions. This is the portion of the industry that is growing the fastest. Our first vehicles will be the Jeep Cherokee full hybrid and range standard introduction. This is very pioneering. We will be the first in the industry to launch in the U.S. a range-extended powertrain for a pickup truck and also for a large SUV while we keep our leadership as Stellantis in the PHEV segment. Again, freedom of choice is at the basis of the new strategy that we are implementing since January this year. This change of strategy is triggering the charges that Joao will detail.

Thank you, Antonio, and hi Emmanuel. The reviews, the strategic review and product plan reviews we are undertaking would lead possibly to project cancellations, as we have already communicated regarding the light-duty BEV here in the U.S. The type of adjustments we should expect on the project cancellations would be a write-off of CapEx and R&D capitalized spend, along with other program cancellation costs. These costs could have a cash impact, which we would expect to have limited cash impact in '25 and more into the future.

Ladies and gentlemen, this was the last question. With this, I am handing over back to Antonio Filosa, Stellantis CEO, for his closing remarks.

Thank you, and thank you, everyone, for your time and focus on the Stellantis story. It was a privilege to update you on the company's commercial progress and its return to top-line growth. I talked about why the investment in the U.S. and the strategic updates we are making are so important and reiterated our guidance, bringing continued sequential improvement quarter-by-quarter. I look forward to updating you on our progress in the coming months and quarters. Thank you everyone.