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Published Jun 15, 2024 • Last updated 11 hours ago • 3 minute read
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Stellantis CEO Carlos Tavares confirmed the world’s fourth-largest automaker would continue to deliver double-digit adjusted operating income margins, positive industrial free cash flow and execute $10.58 billion in share buy backs this year, but warned some difficult cost-cutting decisions in the supply chain will also be required to enhance competitiveness.
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Tavares and other senior Stellantis executive stuck to the theme of seeking savings from suppliers throughout their Investors’ Day presentation at the company’s North American headquarters in Auburn Hills.
“The total cost of an automobile is 85 per cent parts, 10 per cent is the plant and five per cent is logistics,” Tavares said.
“Eighty per cent (of those parts) are going to come from lower-cost countries sometime. That’s something that is going to happen.
“The double digits in sourcing reduction are going to come from the 85 per cent. The guy (company) that reaches that first, that guy will be the winner.”
Finding significant savings to reduce the 30-40 per cent gap in the price of an electric vehicle versus a gas-powered car is key to solving the affordability issue for consumers.
Stellantis is seeking to achieve over 80 per cent of that sourcing value in best-cost countries by 2028.
While NAFTA 2.0’s domestic content rules offer some protection for North American automotive suppliers, Stellantis will still be looking to put the squeeze on them in other ways.
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Stellantis’s chief manufacturing officer Arnaud Deboeuf confirmed the company is also looking to seek savings by becoming more vertically integrated.
With the number of parts in its battery electric powertrains reduced by 75 per cent, pulling some production back in-house is now viable.
“We can produce (parts) in house,” Deboeuf said. “We’ll compete with suppliers to ensure we get the best cost.
“If we can do it better, cheaper, faster, we’ll do it.”
Stellantis has already added 180 new suppliers from best-cost countries.
Tavares confirmed the company has already achieved significant savings in its operations in Morocco and Turkey that position it well to tackle the threat posed by cheaper Chinese EVs.
“What we’re doing today in Turkey and Morocco, it’s at Chinese costs,” Tavares said. “The Smart Car program is 30 per cent less than in Europe.
“We’ll be fighting at almost the same level.”
Tavares said Stellantis would maintain it’s ‘asset-light’ approach to the Chinese market preferring to export vehicles to that nation rather than expand its footprint.
It will also leverage its joint venture with Chinese automaker Leapmotor in that market and elsewhere to improve offerings in the lower price brands. Stellantis owns 51 per cent of the joint venture.
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However, Tavares doesn’t support the U.S. and the European Union’s announced plans to put tariffs on Chinese EVs.
“A tariff is correcting a lack of competitiveness,” Tavares said. “Outside of the U.S. and Europe, we’ll still have to face the harshest competition.
“I want to prepare my company to be ready and fit for those opportunities.”
Stellantis’s chief financial officer Natalie Knight said the company is also well-positioned financially to seize those opportunities when they come.
Though after operating income margin and industrial free cash flow is expected to dip in the first half of the year, Knight said the second half of 2024 is expected to be improved.
“Significant product launches, cost initiatives and anticipated improvement in working capital together support improvement in AOI and industrial free cash flow,” said Knight, who added the company is setting liquidity targets of 25-30 per cent of revenues.
The company is using significant resources in the first six months of 2024 to facilitate the launch of 25 new models, including eight new electric vehicles in North America. Among those new launches will be the Dodge Charger to be built at the Windsor Assembly Plant.
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Full production of the next generation of Charger has been pushed back to August from mid-June.
In the meantime, Stellantis will be looking to shore up its North American sales and reduce its inventory. Stellantis lost 1.7 per cent of its market share in the U.S. in 2023.
“We were arrogant,” Tavares said accepting the blame for the poor performance.
“Market conditions deteriorated at the end of 2023.
“We also weren’t good dealing with the efficiency issues at a couple of (U.S.) plants. We were arrogant in taking too much time to deal with it.
“Our marketing also was not vigorous and professional enough.”
Tavares said the company has been successful in reducing its North American inventory in 2024.
Dwaddell@postmedia.com
Twitter.com/windstarwaddell
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Publish date : 2024-06-15 09:47:11
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