Stellantis: Carlos Tavares' bitter stock market record with Stellantis

(BFM Bourse) – Since its birth in January 2021, Stellantis shares have had a somewhat bumpy ride at first, before taking off in mid-2023 and reaching enviable heights. But the stock's rise was completely erased in just a few months.

The future of Stellantis will therefore be written without Carlos Tavares. The general manager of the group with 14 brands resigned from his position on Sunday, due to “differences of view” with the board of directors.

Carlos Tavares had however been one of the great architects of the creation of Stellantis, on January 16, 2021. On that date, the French PSA and the Italian-American Fiat Chrysler merged to form a single entity, a little more one year after entering into exclusive negotiations.

PSA driver since the beginning of 2014, Carlos Tavares helped cement this marriage. His record at the head of the Sochaux group is excellent. The Portuguese quickly turned around a PSA which was struggling to recover from its difficulties in 2012, when the company was burning through several hundred million euros of cash per month.

Two strategic plans (“Back to the race” and “Push to Pass”) based on rationalization of costs and models allow the company to achieve a current operating margin of 8.5% in 2019 compared to -0.3% in 2013. Incidentally, the manager quickly turned around Opel-Vauxhall, bought in 2017, defying the predictions of a number of investors.

Enough to convince the Agnelli family that he is the man for the job to succeed in the marriage of PSA with a Fiat-Chrysler with renowned American brands (Jeep, Ram) but late in several areas, notably electrification.

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A bumpy ride

If Carlos Tavares has therefore left the company, should his record at the head of Stellantis be called into question? The answer obviously needs to be qualified.

The evolution of the stock price constitutes a simple thermometer even if it is imperfect.

Stellantis begins trading on the Milan and Paris stock exchanges on January 18, 2021 (one day later in New York). This is a purely technical introduction reflecting the merger of PSA (listed in Paris) and Fiat Chrysler (listed in Milan and New York). The reference price is then set at 12.57 euros per share.

As reflected in the simplified chart below, Stellantis then experiences a bumpy stock market ride between early 2021 and early 2023.

More than the execution of Carlos Tavares, it is appropriate to perceive various crises which have plagued the automobile sector, in particular the Covid-19 pandemic, but also the tensions on semiconductors and the prices of raw materials as a result. from the start of the war in Ukraine. A clear decline in action is also observed from February-March 2022, when this conflict breaks out.

The Tavares method produces its fruits on an accounting level. The current operating margin for 2022 increases to 13%, a rate higher than that of large premium manufacturers, compared to 11.8% in 2021. Cash generation increases by 80% in 2022.

If the stock is struggling a little to take off, analysts remain confident and believe that the company's prowess is not properly valued. In March 2023, Royal Bank of Canada judges that Stellantis is the best mass-market manufacturer, ahead of Volkswagen, Renault, Ford and General Motors.

The best performance of the CAC 40 in 2023

Starting in spring 2023, Stellantis' progress begins to trickle down to investors. The action accelerates, so much so that the automobile group takes 59% over the whole of 2023, signing both the best performance on the CAC 40 and the SBF 120, the 120 most important groups on the Paris Stock Exchange.

This rally will also continue into the beginning of 2024. The stock reached a historic high of 27.345 euros during the session of March 26. The stock then gained 71% over one year and 117% compared to its January 2021 reference price.

Stellantis continues to post gravity-defying results, with a current operating margin of 12.8% in 2023 and a record profit of 18.6 billion euros. The manufacturer is then not far from tickling Totalenergies (19.85 billion euros) as the biggest provider of profits in the CAC 40.

Everything disappears in a few months

The situation will suddenly change from spring 2024. At the end of March, Berenberg already believes that the stock needs to take “a break” and lowers his advice to “hold”. The German bank warns that margins in North America are “under pressure, due in particular to high inventories. Conversely, Morgan Stanley estimates in April that the company is still able to deliver a double-digit margin in 2024, and remains to “overweight”, equivalent to “buy”.

At the end of April, Stellantis suffered after the publication of its first quarter turnover. The market is concerned about inventories in the United States and the financial director, Natalie Knight, warns that margins will fall in the first half, with a current operating profit rate expected between 10% and 11% compared to 14.4% a year earlier .

When the half-year results are published at the end of July, this rate will drop just to 10%, quite far from analysts' expectations. The stock lost 8.7% the same day and will continue to decline in the following sessions. The next day Deutsche Bank threw in the towel and switched to “hold” on the stock, from “buy” previously, warning that Stellantis' problems are only just beginning. The German bank fears that the group risks having to make substantial price cuts to reduce its stocks.

At the end of September, Stellantis then issued a heavy profit warning. The company warns that its current operating margin will be between 5.5% and 7% this year, compared to a forecast of at least 10% previously. The stock fell by almost 15% the same day to 12.40 euros.

She will then continue to suffer a little. Monday, following the resignation of Carlos Tavares, it lost 6.37% to 11.73 euros. This is significantly less than its technical reference price (12.57 euros) when Stellantis debuted on the stock market in January 2021.

In other words, Stellantis shares erased in eight months the gains made in three years. So much so that Carlos Tavares leaves the manufacturer with, therefore, a slight decline in shares since the creation of the group. This observation may seem harsh for the manager whose operational prowess has been praised for around ten years.

But it appeared to the manufacturer's board of directors – and perhaps the market – that he was no longer the right man to relaunch the company.

“The announcement of the departure of Carlos Tavares should (…) not be perceived in a negative way, as would have been the case recently, and especially since the annual objectives were confirmed yesterday (Sunday, Editor's note). departure had become inevitable in the short or medium term” wrote Oddo BHF in a note published Monday, before the market opened.

“Carlos Tavares was increasingly isolated (within management but also, therefore, within the board) and, perhaps, too rigid to adapt a strategy which has certainly delivered excellent results for many years (turnaround of PSA and Opel, debut of Stellantis), but no longer seemed adapted to the current environment as evidenced by the group's significant commercial and operational difficulties this year (loss of market share, excessively high stocks, difficult launches, distribution , etc.)”, decides the broker.

Julien Marion – ©2024 BFM Bourse