Fitch revises Stellantis’ outlook to negative amid turnaround challenges

Investing.com -- Fitch Ratings has revised Stellantis N.V. (NYSE:STLA)’s outlook to negative from stable while affirming its ’BBB’ long-term issuer default rating and senior unsecured instrument rating before withdrawing all ratings due to commercial reasons.

The negative outlook reflects uncertainties and execution risks tied to Stellantis’ turnaround plan and potential cash outflows for implementation. Fitch expects free cash flow margins to remain negative in 2025, following last year’s EUR10 billion cash burn, which has reduced headroom under the agency’s EBITDA net leverage sensitivity.

Stellantis reported weaker-than-expected first-half financial results, with unanticipated cash outflows from contingency measures and continued softness in US and European markets. Program cancellation costs, platform impairments, CAFE penalty rate legislation impacts, and restructuring charges resulted in a EUR3.3 billion hit to profitability, leading to a net loss in 1H25.

The rating agency projects a gradual improvement in profitability during the second half of 2025, though EBIT margins are likely to remain weak at around 2%. A recovery to above 4% is anticipated in 2026, driven by new model launches and improving pricing conditions following inventory normalization.

Under new CEO Antonio Filosa, Stellantis plans to address issues including market share losses, electric transition, brand portfolio, and European geographic footprint in early 2026. Resolving these issues may require significant upfront cash outflows, increasing leverage.

Management has guided for a EUR1.5 billion tariff impact in 2025, with EUR300 million incurred in the first half. Stellantis manufactures close to 40% of its US sales outside the country, leaving it highly exposed to tariff uncertainties in that market.

Fitch views Stellantis’ business profile as firmly positioned in the ’BBB’ category, with scale making it a close competitor to global mass market peers like Volkswagen AG (OTC:VWAGY), General Motors Company (NYSE:GM), Hyundai (OTC:HYMTF) and the Renault-Nissan alliance.

The company’s geographic diversification is weaker than Volkswagen (ETR:VOWG_p)’s and Toyota (NYSE:TM)’s due to limited presence in China but compares well with GM’s and Ford’s. Its luxury sales and product offerings compare less favorably with BMW (ETR:BMWG), Mercedes-Benz (OTC:MBGAF) Group, Audi and VW’s Porsche.

Fitch expects Stellantis to maintain EUR25-30 billion of cash and cash equivalents between 2025 and 2028, after a EUR3 billion share repurchase program and adjustments for operational and restricted cash.

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