JPMorgan Turns More Cautious on Stellantis
J.P. Morgan downgraded Stellantis (NYSE:STLA) to Neutral from Overweight on Thursday, while cutting its price target to €6 from €10, arguing that the automaker’s restructuring efforts will take longer than previously anticipated to translate into stronger earnings.
Shares listed in the U.S. fell 1.8% in pre-market trading, while the stock declined 0.8% in Milan.
Cost Savings Seen Delayed Until New Models Arrive
J.P. Morgan analyst Jose Asumendi believes Stellantis still faces roughly 14 months before lower component procurement costs begin to benefit new vehicle launches scheduled for 2027 and 2028.
Without significant workforce reductions or major capacity cuts in Europe and North America, the analyst sees “limited chances for STLA to make a rapid return across both regions.”
“In Europe, we believe STLA is effectively running the business cash neutral, avoiding large restructuring cash outflows as the firm leverages its capacity across Chinese partners such as Leapmotor and DongFeng,” he added.
Earnings Forecasts Reduced
Asumendi lowered earnings estimates by an average of 30% for fiscal years 2026 through 2028, reflecting the absence of large-scale production capacity reductions that could have accelerated margin recovery as vehicle volumes improve.
The revised €6 price target is based on a valuation of 0.4x EV/Sales and 7x forward earnings.
Chinese Competition Remains a Key Concern
J.P. Morgan also highlighted growing competition from Chinese manufacturers as a major factor behind the downgrade.
“Chinese OEMs are advancing, taking further market share in Europe,” Asumendi wrote, noting that competitors including Volkswagen and BMW are already negotiating with labour unions to optimise production capacity.
The analyst said he had expected clearer evidence of restructuring following Stellantis’ recent capital markets day. Instead, the company has chosen to utilise European manufacturing capacity through partnerships with Chinese automakers, limiting immediate restructuring while acknowledging that “some restructuring will be unavoidable.”
Second-Quarter Risks Remain
The investment bank expects Stellantis to post a weak second quarter, with its EBIT forecast sitting around 12% below the Bloomberg consensus estimate.
J.P. Morgan also expects both the European and North American businesses to continue operating at margins close to breakeven.
Additional risks include potential earnings downgrades linked to higher quality-related provisions, particularly in North America, as well as intensifying competition in Brazil, which the bank believes is not yet fully reflected in market expectations.
While Asumendi forecasts positive free cash flow in fiscal 2027 that could support a dividend the following year, he said he would prefer Stellantis postpone any shareholder distributions until profitability improves in North America, particularly given the increasing competitive pressures across Europe.