The European car company Stellantis has delivered some disappointing news regarding its business performance.
Amid persistent economic challenges, the announcement from Stellantis, while not entirely unexpected, has nonetheless unsettled investors. On Monday, the car manufacturer’s shares dropped by 12.9% as of midday trading after the company revised its operating margin and cash flow guidance for the current fiscal year downward.
This announcement is consistent with similar warnings issued recently by other European automakers, including Volkswagen and Mercedes-Benz.
### Stellantis Adjusts Profit Expectations
Citing lower-than-expected sales performance in the second half of the year across most regions, particularly in North America, Stellantis has indicated that its operating income margin for fiscal 2024 is anticipated to be between 5.5% and 7%. This is a reduction from the previously forecasted double-digit profit margins.
Cash flow projections have also been revised. The prior outlook for positive free cash flow in 2024 has been updated to project negative free cash flow ranging from 5 billion to 10 billion euros.
Stellantis is not alone in its caution. Volkswagen issued a similar warning last Friday, attributing it to a challenging market environment characterized by persistent inflation, high-interest rates, and potentially a looming recession. A week earlier, Mercedes-Benz reported that its full-year profit margins are expected to be between 7.5% and 8.5%, down from the previous guidance of 10% to 11%. Like Stellantis and Volkswagen, Mercedes-Benz has cited weakened demand and increased competition, with China being a notable concern.
Market data supports that automobile manufacturers are on the defensive. Both domestic and international sales of new vehicles have been declining since the middle of last year.
### Market Opportunities and Cautions
Despite the unsettling magnitude of the announcement, some forward-thinking investors may find the decline in Stellantis stock to a new 52-week low as a potential entry point. However, caution is advised.
While Stellantis’s brands such as Dodge, Jeep, Fiat, and Chrysler remain highly marketable, the broader automotive industry faces significant challenges. Even in a stronger economic environment, the automobile business may be transitioning from a growth sector to a more static one due to increasing alternatives to vehicle ownership, like ride-hailing services. Investors may want to wait until companies like Stellantis start to demonstrate real revenue and profit growth before considering entry into the market.
### Disclosure
James Brumley has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Volkswagen. The Motley Fool also recommends Stellantis and Volkswagen AG. The Motley Fool has a disclosure policy.
