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Fitch upgrades Stellantis credit rating after record first-half results

Fitch Ratings this week upgraded Jeep maker Stellantis NV's credit rating, expecting the company will be able to maintain a strong financial profile following record first-half results.

Fitch boosted Stellantis to "BBB" from "BBB-." That's still "lower medium grade" investment worthy, but signals some confidence in the new company's ability to weather impacts of the pandemic and inflation and to achieve the cost savings promised from the merger between Fiat Chrysler Automobiles NV and French automaker Groupe PSA that created Stellantis.

"Stellantis' business profile remains comfortably in line with its rating, driven by its large scale, strong diversification and presence in several end-markets and segments that matches higher-rated peers,'" Cigdem Cerit, a Fitch analyst, wrote in the assessment.

The automaker last week posted an $8.2 billion net income and a record 14.1% adjusted operating income margin, despite continued challenges from semiconductor shortages and inflationary pressures. CEO Carlos Tavares emphasized the company is well-positioned to weather an economic downturn with a low break-even point and expects Stellantis can maintain a double-digit margin through the decade.

From that, Fitch analysts are confident in the automaker's ability to report positive cash flows to 2025, benefitted by strong pricing, desirable products and $5.7 billion in projected cost savings from the merger, of which $3.2 billion already have been achieved. Weighing on the company, however, is catching up to competitors in its $35.5 billion electrification transformation, the costs of implementing savings from its merger and a weak position in China, the world's largest auto market.

The company last month said after a fallout with Chinese partner Guangzhou Automobile Group Co. Ltd., it will no longer build Jeeps in the country, but import them.

"Because of its limited footprint in China, Stellantis' geographic diversification is weaker than Volkswagen's and Toyota's, which have greatest diversification across the industry," Cerit wrote, "but compares well with GM's and Ford's."

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