Stellantis, the global automotive powerhouse formed by the merger of Fiat Chrysler Automobiles and PSA Group, issued a cautionary outlook on Thursday, signalling a challenging year ahead after experiencing a 10% drop in operating profit during the second half of 2023. The decline was primarily attributed to protracted strikes at its North American operations, a crucial profit centre for the company.
Labour strikes at the ‘Detroit Three automakers’ resulted in prolonged disruptions to production, culminating in record salary increases for workers. These labour disputes, combined with broader industry challenges such as tepid demand for electric vehicles, intensifying competition from Chinese automakers, escalating cost pressures, and geopolitical tensions, have contributed to a complex operating environment for Stellantis and its peers.
Despite the operational headwinds, Stellantis managed to exceed analysts’ expectations for adjusted operating profit in the July-December period, reporting EUR 10.2 billion (USD 11 billion). The company’s Milan-listed shares surged to an all-time high of EUR 23.22, reflecting investor optimism in the face of adversity.
However, the margin on adjusted operating profit declined to 11.2% in the second half of 2023, down from 12.3% in the same period the previous year. In North America, Stellantis experienced a 16% decrease in adjusted operating profit, with the margin contracting by 160 basis points to 13%.
While analysts acknowledged the company’s performance beat consensus estimates, concerns lingered regarding the vague guidance provided for 2024. Stellantis reaffirmed its commitment to achieving double-digit margins on adjusted operating profit and positive industrial free cash flow for the upcoming year, despite anticipated challenges stemming from higher labour costs in North America.
Natalie Knight, Stellantis’ Chief Financial Officer, emphasised the company’s resilience in navigating the turbulent landscape, highlighting its strong pricing power in North America. Knight acknowledged the impact of last year’s strikes on profitability and revenue, estimating losses of nearly EUR 750 million and EUR 3 billion, respectively.
Looking ahead, Knight acknowledged that the strikes would continue to exert pressure on costs per vehicle produced, although she suggested that Stellantis would fare better compared to its competitors due to its robust pricing strategy. While specific figures regarding estimated higher costs for the coming years were not disclosed, Knight indicated that the impact on Stellantis’ operations in 2024 would be sizable but manageable.
Despite the challenges, Stellantis remains committed to delivering value to shareholders. The company announced a 16% increase in dividend payouts, proposing a dividend of EUR 1.55 per share. Additionally, Stellantis unveiled plans for a EUR 3 billion share buyback program during 2024, signalling its confidence in generating sustainable returns for investors.