Shares of Stellantis (STLA) plummeted in pre-market trading after the French-Italian automaker slashed its FY24 forecast and warned of higher-than-expected cash burn. The company’s lowered outlook comes amid deteriorating conditions in the automobile industry, including rising costs to revamp its U.S. operations and growing competition from Chinese electric vehicle makers. As the European Union moves closer to finalizing potential tariffs on Chinese EVs, Stellantis faces substantial headwinds.
Stellantis Lowers FY24 Outlook
The automaker has adjusted its financial expectations and now expects to burn more cash this year. Stellantis anticipates burning through between €5 billion and €10 billion ($5.58–$11.17 billion) in cash, compared to its previous forecast of positive free cash flows. Additionally, the company has reduced its operating profit margin guidance, now expecting an adjusted operating profit margin between 5.5% and 7% for the year, down from its prior guidance of a “double-digit” margin.
This revised forecast is largely attributed to Stellantis’ decision to rapidly reduce inventory levels in the United States.
Stellantis Plans to Cut Down on Inventory Levels
To address these financial challenges, Stellantis has outlined a plan to reduce inventory levels. Stellantis aims to reduce its dealers’ inventory levels to 330,000 units by the end of 2024. As a result, the company plans to cut shipments to North America in the second half of the year by over 200,000 units compared to last year—double the reduction outlined in its previous guidance. Additionally, Stellantis will offer higher incentives on 2024 and older model vehicles while investing to improve productivity.
“Competitive dynamics have intensified due to both rising industry supply, as well as increased Chinese competition,” the company noted in its press release, indicating the growing challenges it faces in the market.
Adding to these pressures, Stellantis is also dealing with legal issues in the U.S., where shareholders sued the automaker earlier this year, alleging it had misled investors by concealing rising inventories and other weaknesses. Earlier this year, Stellantis also announced plans to lay off around 2,450 workers at its assembly plant near Detroit.
Is Stellantis a Good Stock to Buy Now?
Analysts remain cautiously optimistic about STLA stock, with a Moderate Buy consensus rating based on nine Buys, seven Holds, and two Sells. Year-to-date, STLA has plunged by more than 20%, and the average STLA price target of $22.19 implies an upside potential of 38.2% from current levels.
