After flying start, Stellantis must tackle Tesla and China

A display shows the Stellantis logo at the entrance to the company’s factory in Hordain, France, July 7, 2021. REUTERS / Pascal Rossignol

MILAN, January 18 (Reuters) – If that’s all it takes to catch up with Tesla, Stellantis, the company formed from the merger of Fiat Chrysler and Peugeot, has had a good start – shares have far surpassed US rivals in their first year.

But this is only the first round.

Fixing business in China and overcapacity in Europe are just two areas where analysts want to see Stellantis (STLA.MI) make progress when CEO Carlos Tavares unveils its detailed business plan on March 1.

After all, despite rising more than 60% since its debut on January 18, 2021 – compared to a 27% gain for Teslas (TSLA.O) – Stellantis’ market value of 59 billion euros ($ 67 billion) is still only 6% of competitors in the United States.

However, a strong first year bodes well, and Jefferies analysts say Tavares has shown vision and ambition with a “sustained stream of strategic initiatives.”

Since forging the world’s No. 4 automaker after production, Tavares has charted a € 30 billion electrification strategy, forming alliances with Amazon and iPhone fitter Foxconn to accelerate the development of software and semiconductors for future connected vehicles. read more

He has also drawn up plans for five battery plants and cut agreements with trade unions to continue to streamline European operations – circumvent potential labor disputes and push the company’s operating margin up to around 10%.

With the exception of the former Peugeot-controlled parts manufacturer Faurecia (EPED.PA), Stellantis ‘workforce was virtually unchanged over the past year at around 300,000 – keeping Tavares’ promise not to cut jobs or close factories after the merger.

All this despite a crisis in the semiconductor and supply chain that cost global carmakers millions of vehicles in lost production last year, and which is not expected to ease quickly.

Marco Santino, a partner at management consultants Oliver Wyman, said Tavares lived up to his reputation as a practical man who avoided a “muscular” approach with unions and that the contours of his strategy were in place.

“The road has already been mapped, it needs to be consolidated,” he said. “I do not expect fireworks from his business plan”.

CHALLENGES

But many say that more courageous action is needed.

Jefferies analysts say, for example, that Stellantis’ 14 brands – including Jeep, Ram, Citroen, Opel and Maserati – go “a fine line between differentiation and internal competition.”

This at a time when Tesla is leading the industry transition to an electrical and software-driven future with a single brand and a very focused strategy.

Tavares has said that all aspects of the group are under scrutiny, including the brands, some of which analysts have suggested can be eliminated to save money.

“For now, we love them all, and you can not kill what you love,” the 63-year-old said last year.

“When you love them, you give them a chance,” he said, adding that each brand would take 10 years to prove profitable.

As the group enters its second year, another long-term challenge is to revive its fortunes in China, the world’s largest car market, where Fiat Chrysler and Peugeot owner PSA had almost insignificant market shares.

“We are negotiating now and changing a lot of things at the core,” Tavares has said of his China plans, without giving details.

Jefferies analysts said the company could look to leverage its strong Jeep and Maserati brands there. They may also consider using China as an export base to the rest of Asia, or deepening ties with Foxconn beyond their current joint venture, they said.

“Fortunately for Tavares, he has time,” said Oliver Wymans Santino. “Investors’ focus is on Europe’s turnaround operation at the moment. And on that he delivers.”

($ 1 = 0.8775 euros)

Further reporting by Danilo Masoni in Milan, Brenda Goh in Shanghai and Gilles Guillaume in Paris Editing by Mark Potter and Carmel Crimmins

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