Stellantis posts record first half profit margin ahead of EV reveals

Stellantis NV posted record financial results globally and in North America in the first half of the year, setting up the remainder of 2022 when the automaker, in its second year of existence, will share more details on the electric vehicles it will sell in North America under the Dodge, Jeep and Ram brands.

Stellantis year-over-year had declining sales from a global microchip shortage and other parts crunches. But high vehicle transaction prices drove a $8.2 billion (8 billion euro) net profit, up 34% year-over-year, on $90 billion revenue (88 billion euro), a 17% increase. A $12.7 billion (12.4 billion euro) adjusted operating income represented a record 14.1% group-wide margin compared to 11.4% a year ago.

It's expecting continued challenges in the second half of the year even as semiconductor challenges slowly improved. It decreased its 2022 industry outlook by 8 percentage points in North America and 10 percentage point in Europe because of economic slowdowns. Stellantis, however, still expects a double-digit margin and positive cash flows in 2022.

Inflation, rising interest rates, war in Ukraine and energy worries particularly in Europe are likely to affect consumer confidence, CEO Carlos Tavares said. That could affect sales and pricing next year. He, however, feels the company is well-positioned to endure a downturn with a breakeven point at 40% of net revenue.

"It's not going to be impactful for us this year, because we have such a big order book, so we are going to find ways to delight our customers with the cars they have ordered as fast as we can," he said during a virtual roundtable from Amsterdam where the company is domiciled. "With a company at 40% breakeven point against revenue, we are very sound, very resilient."

Following the merger between Fiat Chrysler Automobiles NV and French automaker Groupe PSA last year, the creation of Stellantis, he says, has an advantage: The company has achieved about $3.2 billion (3.1 billion euro) of the $5.7 billion in projected cost savings from the merger.

That helped industrial-free cash flows make a turn from last year's negative results. They were at $5.4 billion (5.3 billion euro) for the first half of 2022. Stellantis will need those funds to fulfill its electric and technology-infused transformation. The automaker is investing $35.5 billion in electrification and software by 2025 and expects half of its sales in North America will be all-electric from a 25-vehicle lineup by the end of the decade to meet the carbon reduction goals of the Biden administration.

The automaker has electrified reveals set for Dodge next month, which are expected to be the plug-in hybrid Hornet crossover and a concept version of its first all-electric muscle car. Jeep will host a "4xe" day in September ahead of the launch of its first battery-electric vehicle early next year. The plug-in hybrid Wrangler already has helped drive the automaker to the No. 3 seller of "low-emission" vehicle sales in the United States, the company highlighted, citing S&P Global Inc. data.

The "Ram Revolution" also kicks off with a presentation in November. Ram will launch an all-electric commercial ProMaster van next year with the electric 1500 pickup coming in 2024. The brand previously teased that a concept model would be shown this year.

In North America, a $7.9 billion (7.7 billion euro) adjusted operating income represented a record 18.1% margin, up from 16.1% a year ago, even in the face of increased raw material and logistics costs. Average transaction prices hit $52,000 in the first half in the United States.

Still, the automaker this week announced workforce reduction efforts at its Ontario assembly plants to find efficiencies as it seeks to make up for the up to 50% increase in costs of EVs compared to internal combustion engine vehicles. Those plans follow workforce reductions at Metro Detroit stamping plants, at the Jeep Cherokee plant in Belvidere, Illinois, and among U.S. salaried employees.

Tavares says Stellantis is close to having its plug-in hybrids be equal in profitability to its internal combustion engine vehicles. He also feels the company is ahead of its 2026 deadline to achieve that for battery-electric vehicles, but says the prices of rare materials are sensitive to changes in geopolitics.

"If there are, from time to time, unpopular decisions that have to be made, it's not because the company wants to do that. It is because the company is adapting to a new world that has been decided by the representatives of the citizens," Tavares said.

"If I want to protect the access of the middle classes to new cars and new pickup trucks, I have to absorb the additional costs of electrification, and we have a very good path in North America, because we see a lot of opportunities where we can save on cost to fund and pay for the additional cost of electrification."

Dealership inventories also are showing signs of improvement. North American dealers had 22,000 more vehicles than in December. Worldwide, inventory was up 6.8% since then to 845,000 vehicles, but that's still a 4.2% decline from a year ago.

"We see it improving, but slowly," Tavares said of the semiconductor shortage. "One year ago, I would say the number of troublemakers that were damaging the production planning of the company would be around 10. Today, there are two."

Now, the plug-in hybrid Jeep Grand Cherokee 4xe is arriving at dealerships from Detroit. The elongated Wagoneer and Grand Wagoneer L models will launch in Warren before the end of the year.

Other regions also posted double-digit margins. Adjusted operating income rose in Europe by 15%, in Africa and the Middle East by 91%, in South America by 207% and in Asia by 40%. The results at the Maserati luxury brand also more than doubled.

Stellantis earlier this month said it's dissolving its joint venture in China with Guangzhou Automobile Group Motor Co. Ltd. that makes Jeeps for the market after it had planned to increase its stake in the partnership. Tavares said GAC preferred to be in breach of a binding memorandum of understanding than pursue that change. Stellantis has yet to assess what the decision instead to import the SUVs into the country will mean for the goal it shared in March to achieve $22 billion in net revenue there by 2030.

"We took the conclusion that trust was broken and, therefore, we had to unwind operations, because our partner did not want to execute what they had signed in the MOU," Tavares said. "This is to be understood in the context of the growing political influence in the way to do business as a western company in China."

He pointed to declining sales of foreign competitors in China and compared the risks there to sanctions against Russia and Iran that have made it difficult to do business in those countries.

"We don't want to be caught in a position where if there are cross sanctions, we will have to give up on our assets in the weakest business of the two, and we are a great western company," Tavares said. "If we have to choose, we will protect our businesses in the western world."

Stellantis' results beat out its crosstown rivals. General Motors Co.'s net income was $4.6 billion in the first half of 2022. Ford Motor Co. reported first-half profit of $3.8 billion.

Stellantis shares closed up 4.5% to $14 Thursday on the New York Stock Exchange and up 4.9% in Milan and Paris.

bnoble@detroitnews.com

Twitter: @BreanaCNoble