- Loss of c.60% of its market cap and the worst 1-year performance in Autos. STLAM -53% vs. SXAP -16%.
- Potential tactical rebound on cancellation of Trump tariffs on Canada/Mexico.
- Appointment of new CEO to be finalised before the end of 1H25
2024 was a tumultuous year for Stellantis, with its net profit plunging by 70% to EUR5.5bn from its record high in 2023, marking its lowest profitability since the company's formation in 2021. The automaker faced significant challenges, including poor sales, cost cuts, layoffs, disputes with unions and dealers, and the sudden departure of CEO Carlos Tavares following the loss of c.60% of the company’s market cap. At its latest results, pessimism on the name was further fuelled by management acknowledging that the company would not return to the double-digit profit margins seen in previous years, and although they expect a return to revenue growth and positive cash generation in 2025, no significant improvements should be expected before 2H25.
Uncertainty around the stock has also been driven by the latest US tariff wars, particularly Trump’s announcement of 25% tariffs on Mexico/Canada and 10% on China. Stellantis is the European automaker most impacted by US tariffs on Canadian and Mexican imports, as analysts estimate that of the c.550-600k units produced in Mexico and Canada in 2024, roughly 75% were exported to the US. Assuming the company won’t be able to pass more than 20-25% of the tariff cost on to the consumer, it would suffer a 30-40% hit to 2025 EBIT. Similar to 2019, we see a high probability of Trump eventually pulling back, as we believe Mexico and Canada will likely cave in to Trump’s demands, as the US is their largest trading partner. In 2024 Mexico exported c.USD500bn to the US (c.30% of its GDP) and Canada c.USD412bn (c.20% of its GDP). Given the friction between Europe and the US and the disagreement on the Ukrainian peace deal, Trump will likely adopt a harder line against the EU as they have shown less willingness to cooperate.
Looking at price action in 2019 markets also sold off on tariff news, later rebounding once they were withdrawn, with Stellantis mirroring the SP500 performance at the time due to its exposure to the region. Trump has currently paused tariffs on goods under the USMCA trade agreement until 2 April, potentially signalling the willingness of Canada and Mexico to play by Trump’s rules. Although we appreciate that the weakness on the stock has been mostly driven by earnings rather than tarrif fears, nonetheless, we believe the stock will react positively to tarrifs being removed. Another catalyst in the near term is the appointment of a new CEO, which the company expects to be completed in 1H25.
Despite volatility being currently rich, with 3M ATM IV at 2YPc97, given the ongoing political uncertainty, we look to play the upside via a limited loss structure and propose Long June25 13.5 Calls at a net cost of 2.3% of underlying. (Spot ref:11.8, Fut. Ref:11.3).