Wells Fargo initiated coverage on Stellantis (NYSE:STLA) with an underweight rating and a 12-month price target of €18.
“We believe the market is likely underestimating the magnitude of the structural challenges that the industry faces over the next few years.” Wrote analysts at Wells Fargo in a note.
“Key headwinds include price deterioration, which will be exacerbated by excess capacity in N. America & Europe. We also see mix headwinds as BEV ramps to meet regulatory targets, and high-profit full-size pickups may decline given weakening housing construction.”
STLA, under CEO Tavares, has delivered remarkable results. When compared to the combined earnings of its four predecessor companies, which amounted to less than €1 billion in adj EBIT in 2002, STLA achieved a staggering >€23 billion in 2022, as the company pushed stringent cost management policies and consolidated platforms.
However, expected industry challenges are likely to considerably affect overall profitability in the near future. These challenges encompass declining prices, surplus capacity, increased sales of Battery Electric Vehicles (BEVs) to meet regulatory objectives, and a potential weakening in demand for pickups.
Wells Fargo expects STLA’s adjusted EBIT to fall from €22.5B in 2023 to €12.7B in 2024. This is significantly below the consensus estimate of €21.9B and implies STLA would fall short of its >10% adjusted EBIT target.
Shares of STLA are down 0.09% in pre-market trading on Monday.