Stellantis at Wolfe Research Summit: Strategic Restructuring and Market Challenges

On Tuesday, 18 March 2025, Stellantis (NYSE: STLA) presented at the Wolfe Research Virtual Autos Summit, where CFO Doug Osterman outlined the company’s strategic shifts amid evolving market dynamics. While emphasizing restructuring efforts to enhance decision-making, Osterman acknowledged challenges such as market share declines and tariff impacts. The company remains optimistic about its global scale benefits in electrification and software.

Key Takeaways

• Stellantis is restructuring its executive committee to improve decision-making speed and efficiency.
• The company is addressing a 750,000 unit volume decline by targeting inventory corrections and new product launches.
• Stellantis is actively managing tariff impacts on Mexico and Canada while emphasizing USMCA compliance.
• North American EBIT margins are projected to improve, driven by new product launches and competitive pricing.
• Stellantis aims to achieve positive free cash flow by the end of the year.

Financial Results

• North American EBIT margins are expected to rise from low to mid-high single digits in the second half of 2025.
• A 4% price adjustment was implemented to align with competitors.
• Stellantis targets to recapture market share lost due to inventory corrections and new product gaps.
• The company plans to improve its cash conversion cycle from 40%-50% to 50%-60% over the next few years.
• Capital return policy targets 30% of net income to shareholders, adjusted due to earnings dip.

Operational Updates

• New product launches include the DT full-size Ram pickup, a new Jeep Cherokee replacement, and Dodge Daytona Bev.
• In Europe, Stellantis is launching new B and C segment vehicles on the STLA Smart Car platform.
• Retail volumes increased by approximately 10% year-over-year in February, showing positive momentum.
• Stellantis is mitigating potential tariff impacts by adjusting supply chains and engaging with the US administration.

Future Outlook

• Stellantis aims to broaden market coverage in North America with new product launches and expanded ICE powertrains.
• The company expects the EV mix in Europe to increase to high teens by year-end, despite potential margin headwinds.
• Stellantis is launching Leap Motors in EMEA and South America to counter Chinese competition.
• Key performance indicators include market share growth, profitability improvement, and positive industrial free cash flow.

Q&A Highlights

• Stellantis is taking short-term actions to address tariff impacts, including supply chain adjustments.
• The company emphasizes freedom of choice in powertrains and expects a significant shift in Europe’s EV mix.
• Competitive pressures from Chinese OEMs are being addressed with strategic launches and market focus in South America.

In conclusion, Stellantis is navigating market challenges with strategic restructuring and a focus on product innovation. For further details, please refer to the full transcript below.

Full transcript - Wolfe Research Virtual Autos Summit:

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: with Stellantis as part of Wolfe Research Virtual Auto Summit. My name is Emmanuel Rosner, and I’m the lead auto analyst here at Wolfe Research. We’re very pleased to welcome Stellantis, one of the largest and most diversified automakers in the world. In the four years since PSA and FCA merged to form Stellantis, the company has experienced extraordinary highs and more recently some significant lows. And while it’s not a secret that we’ve been cautious on the company fundamentals, it’s also true that Stellantis is home to iconic brands including Jeep, Ram, Alfa Romeo, Maserati and others with the potential for impressive global scale if management can execute a turnaround in in North America and in Europe.

And so at such a critical juncture, we’re very pleased to have CFO Doug Osterman with us today to discuss Stellantis’ strategy as well as Ed Detmyer from Investor Relations. Gentlemen, thank you so much for being with us.

Doug Osterman, CFO, Stellantis: Thank you, Emmanuel. Thanks for having us today.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: So maybe just to kick things off, strategically, what is changing at Stellantis now versus the previous leadership?

Doug Osterman, CFO, Stellantis: Well, I’d maybe highlight a couple things, Emmanuel. One, as you know, we’ve kind of changed to this interim executive committee, which is a team of roughly nine executives, that support the decision making. As you may know prior to that we had more like 29 or 30 senior executives supporting all the decision making. And so we moved to a structure that one I think is a bit more nimble, makes for faster decision making. And also, I think a structure that is more common to what you would see at major corporates around the world, frankly.

So I think that’s something that, you know, will stay in place, long term. Another big shift for us really has been kind of focusing on those, core stakeholders and trying to kind of build back some of the relationships that had deteriorated a bit over the past year. So we’ve been, as you may have seen, you know, working a lot with our union partners, with, the administrations and regulators in the regions in which we do business, working a lot more cooperatively with suppliers, and of course importantly our dealer body, particularly in The U. S. So that’s been a big focus for us.

I would say, you know, not that it’s necessarily a change, but we are very laser focused on this huge product offensive that we have going right now. Lots and lots of product rolling out particularly in Europe but also some very significant launches in North America. And I would say that’s been a big, big focus for us. And then I would say just kind of evolving our approach to kind of the regulatory and compliance side of things. You may have seen that we’ve been involved in some cooling efforts in Europe but also the landscape on the regulatory side is changing pretty significantly.

And so we’ve been really looking at kind of our product plans, resequencing some of the launches, looking at kind of the powertrain offering that we have to make sure that really we have the products in the market with the right powertrains to kind of meet the evolving customer demand that we see in each of the regions. So I’d say those are the kind of the most significant shifts over the last couple of months.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: Yeah. That’s a helpful overview. So Doug, you were part of the team that organized the PSA FCA merger, under the, I guess, premise that the combined scale and resources would drive efficiency. Now four years in, do you still believe the current structure is optimal or could a different organization be more efficient?

Doug Osterman, CFO, Stellantis: Well, I mean, I think that, Stellantis has benefited tremendously from, the merger and we’ve realized a tremendous amount of synergies. And I think there’s quite a bit of synergy still to be realized, frankly. As you know, the product cycles in the automotive world are pretty long. And so I think there’s still lots to come. But I think importantly, when you look at Stellantis today, we have both regional scale in kind of three of the most important markets of the world.

So, Europe, very significant scale, North America, significant scale, South America, significant scale, but also global scale, right? With 5,400,000 units last year, you know, depending on how you group things that puts us around the third largest in terms of absolute number of units sold. So, and I think, you know, when we look at the dramatic changes that are going on in the industry between electrification, you know, the rising importance of software and of course, you know, the more traditional elements of just sourcing. I think these all benefit from a global scale. These types of investments when you can spread them across a significant volume, you know really help with that transition which is you know uh-uh gonna be key to all the competitors in our industry no matter where you operate.

So I think it’s still a big competitive advantage for us. Of course, we still have to live up to the potential, right? We can’t sit back and say well we experienced and achieved a lot of synergies over the first couple of years. We kept to keep driving. I would say also that, you know, we certainly recognize that there, you know, is more kind of regionalization going on right now as opposed to globalization.

And so one of the things that we’ve been working on is really pushing down a lot of the decision making, within the organization into the regions, right, where we can kind of do a better job of one, addressing issues as they occur but also tailoring the product, tailoring the mix, tailoring the approach to local markets. So that’s another thing that we’ve been progressively working on as we see the landscape evolve.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: Shifting to the tariffs discussion with this ongoing uncertainty here in The US, what mitigating actions could you take in case of tariffs on Mexico and Canada? And more broadly, do you expect this a broader shift towards reshoring capacity from Mexico and Canada to The US in the coming years?

Doug Osterman, CFO, Stellantis: Yeah. I mean, tariffs is definitely kind of the hot topic of the day. So appreciate that you waited until the third question to ask it. So that’s good. It didn’t hit me with it first question.

But, but look, tariffs are an issue that we’ve been giving a lot of thought to. There were a couple of different parts of your questions. I’ll try and answer each of them. But please circle back if there’s anything I missed. You know, in the short term, we of course have been working upstream with kind of our supply chain to look at our Tier 1s that might be impacted by the tariffs.

Some stock levels, safety stock etcetera that we normally would keep at a supplier we’ve been moving across the border into our plants. It’s not the way we normally operate, but in order to kind of mitigate any short term impact, we’ve been taking some steps. We’ve been also working kind of downstream with our dealers to collect orders of units that could be impacted to try and produce them over the last kind of month hiatus that we’ve had. And really when you look at the vehicles that we produce in Canada and in Mexico, we have pretty good supply on the ground right now with our dealers, probably seventy to eighty days on most of those units. And so we’re doing some near term actions.

Now importantly, we also have been dialoguing with the administration at various levels. And of course, we really appreciate the opportunity to provide that input, to kind of help them understand the issues within our industry specifically and ways in which maybe they could help us help them achieve their policy objectives, right? And so I think as we think about seeing the administration’s support for U. S. Manufacturing, that’s of course very exciting for us to have the administration so focused on trying to support U.

S. Manufacturing. So we obviously want to see that through, want to help them understand our needs and obviously try to help the administration achieve those goals which they’re gonna be putting out there. So I think it’s an ongoing situation. Of course, just like we adapted after USMCA was put in place you know, in the first Trump administration, I’m sure we’ll adapt to, you know, whatever changes come about on April 2 or thereafter.

Of course, you know, as you probably know from our fourth quarter earnings call, Emmanuel, we’ve been also trying to focus the administration on the roughly 4,000,000 units that come into The US market that are not USMCA compliant. Because even the products that are assembled, in Mexico and Canada, as you know, have very high, you know, many of them have very high US content, right, to meet the USMCA, regulations as opposed to these kind of 4,000,000 vehicles that we’ve been talking about that come in from places like, Korea, from Japan, from Germany, that oftentimes have a little bit no US content. And so we feel that, you know, if the if the administration wants to focus on supporting U. S. Manufacturing, that’s that’s a place for them to also, take a look at.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: Yeah. And then on the other side of the regulatory discussion, the landscape for EVs also shifting here. Detroit OEMs have committed significant capital to EVs in recent years, but a more relaxed regulatory environment could potentially free up some of this capital, previously earmarked for EV investment. How are you thinking about this shift for Stellantis here in The US?

Doug Osterman, CFO, Stellantis: Yeah, I mean, I think a couple of things. One, we’ve always been a big believer in kind of the freedom of choice, right? So we offer a wide range of powertrains, everything from, you know, full ICE to mild hybrids to hybrids to, plug in hybrids all the way to full battery electrics. And really when we invested in our new, set of platforms, so I’m talking about the STLA Smart Car and STLA Mid, STLA Large and our Frame platform, you know, we did it in a way that was multi energy because we recognize that one, there are different adoption rates around the world where these platforms are industrialized, but also that the rate of adoption can shift with government policy and the like. And so I think we’re set up fairly well in terms of being able to adapt the powertrains within the new platforms to the mix that’s desired within the market.

And of course, as we’ve been pretty transparent, we make money on our bet platforms. For instance, in Europe. We’re just launching our first beds in North America, but we don’t make as much as we do on the ICE, vehicles. We’re still working on the convergence of the pricing or the cost of those vehicles. That’ll take some time as battery chemistry changes.

But certainly the ability to potentially mix to meet customer demand for more ICE vehicles should be positive for our mix.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: Shifting maybe to your North American operations, the market understood your 2025 earnings cadence guidance as suggesting North American EBIT margins would improve from low single digit in the first half to maybe mid to high single digits in the second half. It would seemingly require higher market share and volumes while keeping pricing broadly stable or or maybe even improving year over year, which is often a challenging thing to accomplish at the same time. So what will drive this for Stellantis?

Doug Osterman, CFO, Stellantis: Yeah. I mean, the short answer to your question, Emmanuel, is product, right? And we have a pretty significant amount of product coming into the market. And when we think about our pricing really we took about 4% adjustment in pricing during the second half of twenty twenty four and that brought our pricing for the most part in line with our major competitors. So we’re much more competitively priced right now.

And so I don’t think there’s a lot more work to be done there. What we need to do is we need to continue to launch our product cadence. There’s a couple of important elements there. One, as we started introducing the new DT full size Ram pickup, our light duty pickup, kind of mid last year, we didn’t have full availability of a lot of the higher trends. So when we look at like the tungsten, the RHO, the trim lines that have the high output engines.

And so we’ve just gotten back into producing those trims early this year. We opened up dealer ordering for those in January. And so that’s an important add to our mix. We have the new 505,500, the heavy duty versions being refreshed which is really the last kind of piece of the full size truck refresh that we’ve been working on for the past year. We need to get those into the market.

And we need to really look at probably a lower end truck to replace the DS that we stopped production of the old full size pickup that we referred to as the Ram Classic which was at a very attractive price point. Now that the dealers are starting to sell out of those, we need to introduce, kind of a lower end trim of the new pickup to fill that gap. And we are going to be looking at, some expanded ICE power trains that I think are going to be very exciting for customers kind of later in this year. Also very late in this year, we’re going to have the new, RAM, REEV, so the range extender, which is called the RAM charger. That product I think is just gonna be, could be a blockbuster for us.

I think it’s a very, very attractive consumer package with, kind of world class towing capability, very good range, and just a dynamite offer. And I think we will be the first to come out with that powertrain on a full size pickup in North America. So I think there’s a lot coming on the Ram side of things. We also, of course, need to introduce the Cherokee replacement for Jeep, which comes kind of late in the third quarter. That will also be our first full hybrid, so HEV in the marketplace.

And we’ve seen our competitors do very well with those powertrains, and so I’m excited to get our first one into the market and then, you know, work on expanding the offer for that powertrain into more vehicles on that same platform. This is all kind of building on this launch of these new platforms into the marketplace. And so it’s a great time for us. But really that’s the key to the market share this year really is broadening the coverage that frankly has shrunk for us. And last year as you know, we didn’t have Charger and Challenger.

We stopped production of those cars. And so we just kind of started up the first version of the replacement vehicle, which is the Dodge Daytona Bev, but we’ll be coming out with ICE versions of that vehicle, the two and four door kind of mid year this year. So again, another kind of blank space at least temporarily for us right now being filled in. So certainly market coverage has been an issue for our market share over the last year or two.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: Yeah, absolutely. Let me try and dig in into a little bit more details on some of the product coming up. So you mentioned you have key launches in the crossover space, in the sedans, in the EVs. What are your volume expectation for these launches? Or I guess how should we think generally about sort of like that the volume benefit from some of these launches as we move into the back half of this year?

Doug Osterman, CFO, Stellantis: Yeah, and when we look at Splantis as a whole, of course, the product launches and the product story I would say is even stronger on the European side, right? So in Europe, we’re launching all of our new B and C segment vehicles. As you know, the B segment is like 20% of the market. It’s been a stronghold for us. And so being able to launch all of the smart car based vehicles, starting with the C3 and EC3 late last year, kind of September, October, then moving into, C3 Aircross, Frontera, Fiat Grand Panda, a lot of, you know, whole onslaught of vehicles frankly in the B segment.

And then in the C segment also with our new Stellar medium platform, 03/2008, ’5 thousand and ’8, Opel Grandland, we have a C5 aircraft. So a lot of new products coming in, so big product story in Europe as well. But to answer your question on volumes, as I kind of looked at the volume decline that we had last year in terms of the 750,000 units that we talked about on the earnings call, I kind of broke it roughly into three three parts, roughly 250,000 units that was related to inventory correction, right? Another 250,000 that was related to blank spaces that we’ve been talking about filling with this new product. And then another two fifty that was frankly from market share decline of existing products.

And that’s where some of this price reposition that we’ve talked about in the second half, as well as really an increased focus on marketing. And anybody that kinda saw the Super Bowl and saw our two ads getting definitely more aggressive on defending our share of voice, particularly for those products that really make a big difference for our profitability. So Ram and Jeep in North America, significant increase in our marketing efforts on that front. And of course, new leadership for Ram with Tim Konikos coming back into the company to run the Ram brand after a long and storied career here as a great marketer. So I’m sure all the dealers are very happy to see Tim back as are we.

So lots of change.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: So on the on the sorry. These three buckets are very helpful. So out of these out of these seven fifty, would would you think you can you’re targeting this yet to recapture one or two of these buckets? I mean, certainly the blank space, I guess, but,

Doug Osterman, CFO, Stellantis: yeah. We want to try and capture kind of two of those buckets let’s say that I mean, obviously a lot of it will depend on kind of how the market itself develops over the course of the year, right?

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: Yeah.

Doug Osterman, CFO, Stellantis: Certainly we’re trying to address, we won’t have a repeat of the inventory correction. We certainly will be able to fill in some of the white space products not on January 1. So that only be a partial replacement as we move throughout the year. As I mentioned some of the launches are later in the year. And then of course the market share will very much depend on the effectiveness of our efforts there.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: Yeah. And then on pricing, incentives have been rising since middle of twenty twenty three, but the retail market share has sort of like remained on the low side. What do you make of the lack of price elasticity?

Doug Osterman, CFO, Stellantis: Well, we did take a lot of the, our price adjustment, like I said, kind of in the second half of last year on the North American side. On Europe, we really addressed it kind of in the first half of the year. So a little bit different dynamic there. But, if we look at our level of incentives as a percentage of the kind of what we think of it as the customer facing price, that that really peaked in October and has been receding generally since then. With kind of the difference between our incentive spend and the average of the market coming down by about a third.

If we look now in terms of, you know, market response, which was really the heart of your question, we’re seeing the early signs that we’re moving in the right direction. You know, dealer orders have been much stronger during the early part of 2025, which was a big improvement. When we look at retail volumes, they were about 10% higher year over year in February. So we’re kind of cautiously optimistic that we’ll be able to build some momentum, build back some of the market share. But the dealer orders are also extremely important to us, right, to be able to run our plants, efficiently, throughout the year.

So both those sides I think are encouraging but still kind of early days here.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: And then maybe one more on The U. S. Pricing, where should the Ram 1,500 pricing ultimately land? I think you mentioned obviously some of your current product but also the need to introduce something to replace the the classic and and do you have a a target market share, to go back to on the Ram 1,500?

Doug Osterman, CFO, Stellantis: Yeah. I mean, really, when we when I think about about the Ram lineup today, I think, for the trim levels that we have in the market, we are very competitive. Obviously, being able to come out and produce more of the higher level trims, like the tungsten and RHO, I think that’s gonna help our overall pricing because there’s a lot of kind of pent up demand for those models right now. I think, the 505,500 are brand new products. So we really don’t see a lot of discounting typically when we have new products like that.

The lower end model that we need to address, that’ll take a little bit of time. So I don’t see that coming into the market immediately. We still are working on that one. And then, of course, second half being able to come out with that range extender powertrain, I think could really help us as well. So I don’t necessarily think that we need a lot of pricing effort on the Ram side.

We need to bring the products back into the market, and of course work on the share of voice and the marketing efforts side, which frankly, we weren’t spending against in the past year or two. And I think we need to return to defend our share of voice and make sure that customers are aware of our products, aware of all the benefits of our products and have that emotional connection that we traditionally have had with our customers via the Ram brand. And really, we have a lot of very storied fantastic strong brands. I appreciate, Manuel, you mentioned them at the top of our discussion. But, yeah, obviously, we need to keep the marketing up to keep that connection.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: Yeah. Shifting to Europe. So the Europe market share was maybe around 15% in the second half of last year, down from 18% in the first half. So some of the delayed B segment launches played a role, but we’ve also heard feedback that Stellantis products are perhaps misaligned on price and mix. Does the portfolio or pricing strategy in Europe need adjustment or is it really just about introducing the product?

Doug Osterman, CFO, Stellantis: Well, I mean, we’re of course always looking to improve price and mix. So I won’t say that we aren’t working on price and mix. For sure, we always are. But really, you know, what happened was our products, in the particularly the B segment, we did not invest in the former products and their powertrains, as the regulation changed mid last year because we’re expecting the new products on the new platform, the smart car platform which we had industrialized previously in India but had the first industrialization of the smart car in Europe launching. And we thought that it would dovetail come right in as the old vehicles ran out.

It turned out that it took us longer to get that new platform, all the new powertrains and all new top hats kind of set up. And so there was a delay there, right? And so in second half, we were missing a lot of those products that we expected to have in the market. And so really the product cadence now that we got the first top hat launch on that new platform in the SeptemberOctober period is very rapid. So if we look at February start of production, we had quite a few cars off that plaster, the sister cars if you will, all launching so Oboe Frontera, Fiat Grand Panda, the C3 AirCross.

So just a big, big rollout. And so I think when we look at really improving the market share, those products are the key to the market share. In fact, if you look at our market share in Europe in January and February, it’s significantly up. So I think we’re seeing good signs, but really most of those products hit in March, right, Cause they started production in February. So really March, April is when we we really wanna watch to see that market share start to really us kind of reclaim our traditional market share in some of those segments.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: How should we think about the impact of the EV mix on margin considering that you have sort of like this recent development around easing regulations but you also have new BEV launches. Any insights you can give us into, units profitability or operating leverage on these BEVs?

Doug Osterman, CFO, Stellantis: Yeah. I mean, it’s a good question, Emmanuel. And, you know, the we have to separate it kind of in the two markets. In North America, EVs are such a small percentage of the overall market, you know, kind of 8% that we are launching some exciting BEVs, but they aren’t really a big factor in our profitability. When we look at Europe, it’s quite a different story, right?

In Europe, the regulations are changing such that, really most manufacturers will need to get into the high teens in terms of mix, maybe around 20%, to be compliant by the end of the year. And I can tell you a lot of manufacturers are not anywhere near that percentage rate. So it’s a big shift. Even for us, we’re looking at a shift from kind of low teens to very high teens at the end of the year. We feel well positioned to do that because of all these products we just talked about.

They all are multi energy, so they offer ICE versions and mild hybrids, but they also offer full baths. And frankly, the early orders for a lot of those car lines that we just talked about in the B and C segment have been heavily, heavy bed mix. So that’s good. They’ve been well received. We do make money on those products in Europe.

But as I mentioned earlier, we don’t make as much as we do on ICE. So when I think about, to answer your question directly, when I think about that mix going from kind of low teens to high teens, I would say we’re looking at a margin headwind of up to a full percentage point. So 100 basis points, one full percentage point of margin headwind from that shift. Now the second part of your question when you were talking about, well, you know, how do we think about this regulation change? The regulation change, assuming it passes in Europe, is really a shift to something much more similar to what we have in The United States, which allows you to comply over this kind of three year period.

Now for us, like I said, we already had planned on being self compliant with our own portfolio. We also have a little bit of cushion because we have pooled for a little bit of credits with Tesla. We also have pooled with Leap Motor. As you know, we’ve launched Leap Motor in Europe. I wouldn’t be surprised if we sell 50,000 units of Leapmotor in Europe this year, and that’ll help because we get to take advantage of those credits as well.

So there’s a little bit of cushion as well. But where it really is a relief, frankly, from my viewpoint is I was very concerned, that we would get to kind of third quarter. A lot of our competitors who maybe are not as well equipped for this shift to bev, might start to look at their mix, look at the fines that they may be subject to and start to panic. And that price discipline in the market on bevs in particular in the fourth quarter could get really ugly, right? And so the fact that now that EU is looking to pass legislation that is going to allow for that panic to be avoided and for people to comply over a three year period is a huge plus in my book.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: That makes sense. I have a few questions on the SORT engine, but interest of time, I’m probably going to jump to focus on free cash flow and on capital allocation, and then we can come back to a SORT engine if we have time. So you guided to positive free cash flow this year. Can can you provide us more context? What are the key assumptions around, working capital volumes, etcetera, to, you know, to achieve that?

And, what’s the upside potential for normalized free cash flow later down the line?

Doug Osterman, CFO, Stellantis: Yeah, so one is an ex treasure, I’m glad you’re focused on cash. It’s a key area, right? So look, if we look at the first half just to give you some more granularity, if we look at the first half, I had mentioned on the call that I expect us to run at a, AOI, you know, operating income percent of low single digit, right? With low single digit margins, the ability of the company to generate cash when last year, keep in mind, we ran it at 10% AOI, right, in the first half, and we were just basically breakeven on cash. We had negative $400,000,000 right?

So to run it single digit, I wouldn’t be surprised if we see some negative cash evolution in the first half on industrial free cash flow. Now much of that will depend on kind of the production levels that we run out in the last six to eight weeks of the half, and how our inventory dynamics evolve in those last few weeks as well. So we’ll have to see. There’s a possibility that we could be closer to breakeven cash. But it wouldn’t surprise me at all if we end up at negative cash in the first half.

All the cash generation will come really in the second half. And as we talked about, we expect to return to positive free cash flow this year. Longer term though, we really need to look at our cash conversion cycle, right, and improve our performance on that metric. I would like to see us go from a traditional performance where we’re kind of in the 40% to 50% range to be 10 points higher than that in the next couple of years. But it’ll take a lot of work and a lot of discipline.

But yeah, cash flow is a big important focus for me and the return to positive cash flow this year is key for the company.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: And how are you thinking about capital returns to shareholders this year and beyond? What is the right formula or framework for Stellantis?

Doug Osterman, CFO, Stellantis: Yeah, I mean as the former treasurer of the company I mean I worked very hard to put together with my team and the colleagues here what I consider the fortress balance sheet. And we have always talked about the fact that we’d like to run at a liquidity that is 25% to 30% of trailing twelve month revenues. As you know in the last few years we ran substantially higher than that. But we kept a strong balance sheet so that we can endure a year like we had last year, right, where we had negative free cash flow. We did it because we know that we operate in a volatile industry, a cyclical industry and you’re going to have years like that.

And so what that allowed us to do though was to absorb that down year and not change our return of capital strategy. We’ve always talked about the fact that we want to return 25% to 30% of net income to our shareholders. Now traditionally because we’ve been running such strong earnings we had been at the 25% level. With the dip in earnings this year we went to 30%. So it allowed us some flexibility to return more capital and in fact we also returned some capital that was associated with the transaction we had on the separation of Kamau, which we had signaled at the time of the merger and finally, were able to accomplish this year.

So I feel good about the consistency of our capital return to shareholders. And I would expect that our policy will continue as we continue to see the company return to positive free cash flow.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: Looks like we may have the time to ask actually one or two questions on the certain engines. So let’s do it. You know, Stellantis has dominant positions in markets like Brazil and Turkey, but Chinese OEMs, most notably BYD, are ramping volumes there. Given their willingness to operate sometimes as a little too no margin. What are you seeing and how are you thinking about competitive pressure?

Doug Osterman, CFO, Stellantis: Okay. So, yeah, I mean, our third engine, our profitability in the third engine is driven by South America and MEA primarily. So when we think about those markets they’re quite different. And keep in mind when we think about the Chinese threat, we of course are launching the Leap Motors brand in both those regions. In EMEA we started the launch already.

In South America, we will be launching later this year. So those customers who are attracted to that kind of Chinese offer of kind of value technology for, for the money, I think we have a good offer for them. It’s it’s, somewhat differentiated from, kind of our traditional strong emotional brand connection, brands that have been around for one hundred plus years in many of these markets. Right? But I think it’s a great offer and it’s been very well received and I think LEAP Motors is going to help us combat the Chinese.

As you know, we have all the exclusive rights via RJV to all the sales of LEAP motor products outside of China. We have exclusive rights to all the manufacturing of lead motor products outside of China. So we have our own kind of Chinese initiative. That being said, when we look at a market like South America, you’re looking at a market where I would say that the strongest differentiator where the Chinese tend to have a real strength in the bev side of the market, right? That’s where I’d say the cost advantage is the biggest.

South America frankly is not a very big BEV market, right? It’s tiny down there. South America is a market that is focused on flex fuel, right? And we have a great team down there that develops fantastic products local for local, produces them in local plants. The brands are well loved in those markets.

We are the number one in South America for the fourth year running now with Jeep and Fiat as our lead brands. And we have a real depth of understanding of these multi fuel technologies and engines. And so it also, as you know, Brazil is a somewhat protected market, so you see the competitors like BYD purchasing plants. I think they just purchased a Ford, ex Ford facility to localize, but it’ll take some time. And like I said, I think, you know, their their real strength, which is on the BEV side, is maybe not as potent, at least in the near term, in the South American market.

When I look at at, MEA, again, we’re extremely well positioned, and there’s a lot of opportunity in MEA. You know, we’re kind of focused on five of the 55 countries in that region, but there’s a lot of expansion possibilities there. We have a growing, strong, very young middle class in the Middle East Africa region, and we have strong market share, very strong margins, and we keep introducing more of our European products into those regions with local production and it’s been a very successful strategy for us. And so again, I think, that’s a real area of strength and opportunity for us. Not to say we’re ignoring the Chinese threat, we’re certainly not, but I think we’re well positioned in both those markets.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: So then to summarize if we fast forward another nine months what KPIs are you focused on that will indicate Stellantis is exiting the year in a stronger position than when it entered?

Doug Osterman, CFO, Stellantis: Well certainly we want to grow market share in both North America and Europe. I think that’s a key metric for us all to focus on and watch to measure our own progression. Certainly improved profitability sequentially going from kind of last year second half we ran kind of flat to single digit in the first half, low single digit in the first half to kind of mid to upper single digit in the second half. I think that’s going to be an important metric so that we exit you know, with a rate that is indicative of where we can go next year. And certainly the return of cash generation, very, very key for our company.

So industrial free cash flow positive.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: Great. Doug, thank you so much for the time and insights very much. Enjoy the conversation. And thanks everyone on the line for joining.

Doug Osterman, CFO, Stellantis: Yeah. Thanks for having us.

Emmanuel Rosner, Lead Auto Analyst, Wolfe Research: Have a great day. You too.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.