Stellantis N.V. (STLAM) Earnings Call Transcript & Summary

[Operator Instructions] I now hand you over to your host, Andrea Bandinelli, to begin.

Thank you, Josh, and welcome to everyone joining us today as we review Stellantis' revenues for first quarter 2022. Earlier today, the presentation material used during this call, along with the related press release, was posted under the Investor section of Stellantis' group website. Today, our call is hosted by Richard Palmer, the group's CFO. After his presentation, Mr. Palmer will be available to answer questions from the analysts. Before we begin, I want to point out that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on Page 2 of today's presentation. And as customary, the call will be governed by that language. Now I would like to hand the call over to Richard Palmer, CFO of Stellantis.

Thank you, Andrea. Good day to everybody. It's good to be here. So starting on Page 3 with the usual explanation of the fact that we continue to compare our performance to pro forma numbers for Q1 2021. Given that the merger happened halfway through January '21, we present the numbers as if it had happened on the 1st of January 2020 actual fact. So it's '22 actuals for Q1 compared to the pro forma for Q1 '21. And we are going to be looking at net revenue performance for the quarter. So moving to Page 4. A quick summary of some of the highlights. On the back of last year's record financials, we're full speed ahead on the execution of our long-term strategic plan, therefore, with 2030, which we announced at the beginning of March. And for the quarter, we posted strong Q1 revenues with EUR 41.5 billion and a 12% increase over the prior year despite our consolidated shipments being down 12% year-over-year to just short of 1.4 million units, and we'll discuss the drivers of that performance in the next few pages. From a market share point of view, we also had a strong quarter in South America. We strengthened our leadership position with a 23.6% market share, up 150 basis points. We were, overall, market leader in Argentina, Brazil and Chile. And in North America, our market share improved 30 basis points to 11.7% driven by demand for our recent vehicle launches. The Jeep brand was a clear winner with an 80 basis point improvement in its North America share, driven by the 2- and 3-row versions of the all-new Jeep Grand Cherokee as well as the new Wagoneer and Grand Wagoneer. Our market share Enlarged Europe was negatively impacted by product availability as the semiconductor shortages hit us hardest in that region. Our share was down 190 basis points from 20.9% in Q1 '21 to 19% in this quarter, although Q1 '21 was a particularly high performance if you look back at the sequential quarters. In EU30, we maintained our leading position in commercial vehicles, achieving a 34% share in the quarter. Globally, our BEV sales were up 55% to 60,000 units, primarily driven by Enlarged Europe BEV sales up more than 50% year-over-year. And as we progress in the execution of our Dare Forward plan, we've entered into strategic partnerships with Amazon and Foxconn as part of the software strategy. We also executed partnerships with LG Energy Solution and Automotive Cells Company, securing additional battery cell capacity in Canada and in Italy as outlined in our strategic plan. And two days ago, we announced our mobility brand, Free2Move, will become the European leader in the mobility business through the acquisition of Share Now, extending its operations to cover 16 major European cities and 5 U.S. cities with more than 5 million users. I'd like to highlight also that last week we paid our EUR 1.04 ordinary dividend to our shareholders, which was approved at our AGM on the 13th of April and totaled a distribution of EUR 3.3 billion. Moving to Page 5. We show the shipments and revenues for the group. The increase in revenues of 12% to EUR 41.5 billion for the quarter shows the strength of our business to weather the recent headwinds caused by volatile macroeconomic conditions as well as the continued negative impact of unfilled semiconductor orders, which continue to constrain our volumes. We continue to take prompt commercial actions in all segments to protect our revenues and profitability. These drove significant contributions from positive net pricing and vehicle mix in the quarter facilitated by important product launches that I mentioned earlier. Moving to Page 6. We show the walk from the pro forma revenues for Q1 '21 to the Q1 '22 revenues. At a segment level, the revenue growth was driven by North America, plus 30%, and South America, plus 40%, more than offsetting extended Europe down 9%. Extended Europe was the main reason for the negative volume and market mix with shipments down 24% or 201,000 units, partially offset by North America, plus 6% or 29,000 units. These were the main drivers of group shipments being down 193,000 units or 12%. The main driver was the semiconductor shortages we're experiencing, which are currently more concentrated in a handful of large suppliers with Extended Europe in particular but also EMEA and South America more affected than last year, while North America was less affected. This drove a positive regional mix impact at group level, which offset around half the impact of reduced volumes shown in the work in the volume and market mix bucket. Net price and content and vehicle line mix added EUR 4.5 billion with all regions showing strong year-over-year improvement. North America accounted for around 50% of the vehicle net price and vehicle line mix improvement and Extended Europe for 25%. South America and Middle East and Africa had the largest percentage improvements each at over 30% due to pricing to offset inflation and FX translation, respectively. FX translation was positive at EUR 1.6 billion due to stronger USD versus euro and real versus euro, offset by negative Turkish lira. And the other bucket of EUR 0.6 billion positive was driven by lower levels of fleet volumes, particularly in Extended Europe, and so less buyback sales as well as improved performance in parts and service. Next, on Page 7, we review the segments. Starting with North America, as I said previously, Stellantis market share improved by 30 basis points to 11.7%, in a market that was down 15%. Share improvement was driven by the Jeep brand, up 80 basis points and partially offsetting Dodge brand due to the discontinued Grand Caravan and Journeys. Total sales reached 462,000 units, down 13% with shipments of 480,000, up 6%. And so there was some minimal replenishment of dealer stock levels, which finished just short of 300,000 units. Shipment growth was driven by Jeep, up 50,000 units due to the great Jeep Grand Cherokee L and Wagoneer/Grand Wagoneer with Ram down 14,000 units due to reduced shipments of 1,500 and ProMaster. Revenues were up 30% or nearly EUR 5 billion with volume and market mix, price, vehicle mix and FX all contributing as the new products gave a further boost to the region's continued strong performance. Moving to Extended Europe. This was the region most impacted by semiconductor shortages in the quarter, as I mentioned. In EU30, the market was down 12% with some key markets down more, such as Italy down 23%, Spain down 16% and France down 19%. Of our 190 basis points reduction in share, 30 basis points was due to market mix. Dealer stock levels were down in the quarter with sales of 678,000 units exceeding shipments of 622,000. The shipments were, therefore, down 24% despite the benefit of strong demand for new launches such as Opel Mokka, Fiat Scudo and Fiat New 500. The impact on revenues was mitigated by improved pricing across all brands and positive vehicle line mix due to the runout of the A segment C1 and 108 vehicles as well as increased LEV mix. Regarding Middle East and Africa, market share was down 40 basis points to 11.2% despite our share being up in a number of the main markets in the region. This was due to market mix as Turkey, where our share is around 30%, was down 24%, whereas the overall region was down 7%. Consolidated shipments were down 4% to 67,000 units due to shortages of vehicles mainly from European plants. Revenues were up 7% as the team took strong pricing actions over and above those needed to manage cost inflation to offset significant FX impacts in Turkey, in particular. Moving to Page 8. South America had a strong quarter, further consolidating its market leadership as driven by Peugeot and Citroen with Opel, Jeep and Ram also all positive and offsetting some share loss by Fiat due to semiconductor shortages. Sales reached 184,000 units, down 5% in an industry that was down 11%. Shipments were down 8% due to increased semiconductor losses versus prior period, especially impacting the Fiat brand. Revenues were up a strong 40% or EUR 0.8 billion driven by strong positive pricing in all markets, positive vehicle mix due to Fiat Pulse, Fiat [indiscernible] and Jeep Commander and positive FX due to real's appreciation. China and India and Asia Pacific consolidated volumes were down 7%. Jeep Grand Cherokee and Wrangler up in China as were Jeep Compass and Peugeot 3008 in India and Asia Pacific. But these were more than offset by shortages on other products. Positive mix -- positive pricing was driven by actions in Japan and Korea, and content mix was driven by the Alfa Romeo Giulia GTA and Stelvio Veloce. Maserati shipments were down 20%, mainly as a result of reduced volumes in China. Revenues were down just 5% due to better pricing on model year '22 vehicles and positive vehicle mix due to MC20 shipments. The brand is now very focused on the upcoming launch of the all-new Maserati Grecale at the end of Q2. On Page 9, we show the status of our inventory. Compared to last March, total inventories are down 35% to 807,000 units. Compared to December inventory, we are basically flat but dealer inventory is down 10% offset by an increase in company inventory compared to the seasonally low level at year-end as the plants go down for year-end shutdown. The sequential reduction in dealer inventory was driven by semiconductor shortages in Extended Europe taking dealer inventory to 217,000 units, the lowest quarter point we have had, whereas North America was actually up again for the second quarter in a row to just short of 300,000 units compared to the low point at the end of Q3 2021. The other shipment -- the other segment's dealer inventory levels were also slightly -- were all slightly down compared to year-end levels. Moving to Page 10. We review our full year outlook. We've reduced our 2022 industry outlook in North America from up 3% to stable and in Enlarged Europe from up 3% to down 2% as a result of the slower start in those markets due mainly to supply chain shortages driving reduced product availability but also due to economic uncertainties, which are impacting trading conditions, particularly in Europe. Nonetheless and based on our strong revenue performance in the quarter, we confirm our full year '22 guidance of double-digit AOI margins and positive industrial free cash flows. We have some key new products in market, which will support our performance for the rest of the year, such as the Jeep Grand Cherokee and Commander, Wagoneer and Grand Wagoneer, Fiat Pulse, Opel Mokka, Peugeot 308, DS4 and Maserati MC20, and we will have further important product launches in the rest of '22, including the Maserati Grecale, Opel Astra and Alfa Romeo Tonale. We should note that full year volume forecasting continues to be challenging due to the continued shortages of semiconductors, and we continue to have limited visibility as to when volumes might significantly improve. We believe that any sequential improvement in 2022 is likely to be marginal and weighted towards the end of the year, even if Q3 is expected to be better than last year due to the significant impact of Malaysia in that quarter. H1 volumes will continue to be challenging, but we're confident that we can continue to deliver on our financial commitments for the year. Thanks to you all for attending this call, and now we can move to Q&A.

[Operator Instructions] Our first question comes from the line of Patrick Hummel from UBS.

I'd like to ask you two questions. The first one is on the dynamics around pricing versus raw materials. You obviously had a very, very strong price/mix positive contribution in the first quarter. And I guess -- I mean, you haven't disclosed it, but probably the year-over-year increase in raw mats was less than the EUR 2.6 billion that you were able to book in the revenue bridge on price and content. So for how long do you think you can sustain price/mix increasing more than the raw mats and if you can give any updated view on how big the raw mats headwinds will be for the remainder of the year? Obviously, the market is thinking that margins will, at some point, get squeezed. That's what the valuations of these are telling us. So I'm just curious to hear your thoughts about your pricing strength in the coming quarters versus raw materials increase. And the second one is on order intake. I mean clearly, inventories are low. I'm just curious, we heard from a competitor of yours that order intake is somewhat softer year-over-year, but there is a big order bank to execute on. So if you can just share your latest data points as far as order intake is concerned, that would be much appreciated.

Thank you, Patrick. So in terms of price versus raw materials, clearly, we had another strong quarter in terms of pricing, as you mentioned, which, if I look at it at a group level, it's something like 7% up year-over-year and in line with the continued increasing in price levels. And I think we're very confident that we can continue to offset the raw material inflation headwinds with pricing. The number we gave you for the full year for raw mats was about EUR 4 billion, which honestly, I think, might be a little shy of where we will end up for the full year, frankly, given the most recent movements in the market. But EUR 4 billion on something -- that's something like 2.5% of our run rate revenues based on Q1. So 2.5% compared to 7%, we're well ahead of the curve in terms of offsetting raw material impacts. Obviously, there are other inflationary impacts as well in our cost base, but they are of a much lower quantum than the raw material impact. So I think we've been ahead of the curve in pricing. I think the fact that our product lineup continues to be very competitive and we have a lot of important launches that we just made and further launches coming across our brands, I think, also all goes well for us to be able to continue to price with the competitive product we have. In terms of order intake, yes, we have a very strong backlog of orders in the order bank for the regions in general. And I think at the minute, the concern is more about supply than demand. It's difficult to tell, to some extent, the mix of those two impacts on the marketplace and demand, I think, we're seeing a continued strong demand in North America, and the overall SAAR is sort of coming back slowly month by month that we've seen in the last few months from a relatively low start, and our product lineup is really strong in North America. So as we got a bit more production year-over-year, you can see that our share is going up despite the fact that we don't have very much volume at all for fleet at the moment. Europe is a bit more complex, I think, because year-over-year, our comparison to Q1 of last year is impacted in terms of share by a very strong Q1 last year. But if you look at the sort of sequential share performance, it's quite in line from a quarterly point of view. The level of inventory we have in Europe, like I said, is at its lowest level from a quarter point since we've been in Stellantis, which we're convinced is impacting our ability to move quickly in the marketplace and be competitive from a share point of view. So that's definitely an impact. But there's clearly also a lot of volatility and a lot of concerns from consumers given the overall macro situation in Europe. So I think you could say that it's a supply issue, but I'm sure there's an element of demand as well in Europe. But having said that, I think our share was relatively healthy. It was impacted by supply. We work on that aspect, but the vehicle lineup is strong. We continue to launch vehicles. We're launching -- the Mokka is doing very well for Opel. The 308's doing very well for Peugeot. The Fiat 500e and the other BEVs were up over 50% year-over-year, which is good, clearly. And we have some interesting launches coming. So I think it's important that we continue to be competitive on the product side and be more competitive than the competition. That's what it's all about.

And if I can just follow up, Richard, on those EUR 4 billion or a little more raw mats headwinds, does that also factor in that suppliers are facing a lot of inflationary pressures? And obviously, they're under pressure to also renegotiate terms with the OEMs. Or was that comment purely related to the higher commodities that make you say it's going to be a little bit more than EUR 4 billion maybe?

Well, the EUR 4 billion is the commodities. It's the raw materials impact. It includes our exposure to raw materials through indexation and also with supplier contracts, but it's really specific to raw mats. There are other impacts as well, like I said, on energy, on labor, on transportation, which would increase that number, but they're not at the same size as the raw mat impact.

Our next question comes from the line of Thomas Besson from Kepler Cheuvreux.

I have two questions as well, please. I know it's a revenue call, but the one point I'd like to come back on which is not directly related to revenue to Stellantis, you've announced that you would buy back shares. I'd like to know yourself something you could share with us on that in -- on the time line of that possibility and how you would proceed to buy back with up to 5% shares you've mentioned on March 1? That's the first question. The second question, can you say a bit more about the acquisition that has just been announced making you the undisputed market leader in mobility services in terms of any visible impact on your accounts and where it's going to be visible on your accounts?

Yes, Thomas. On the share buyback, as we mentioned, this is something that we put into our use of capital going forward. I don't have anything to announce as of today, but it's clearly a part of our capital allocation that we are looking at. And when we have something to say, we will update you, but for the minute, I don't have any particular news on where we are on that process other than saying that we have capital allocated as we move forward. On mobility segment, we haven't closed the deal yet. So when we've closed, we'll give you a bit more information on the impact from a financial point of view. I think we're very excited about the fact that we can move into a much larger position in mobility, and it is an extension of our ability to provide mobility services to our customers beyond the sale of the vehicle. So I think we're very pleased with that, and we see a big opportunity there as we'd outlined in our Dare Forward plan, but I think we'll give you a bit more information on the impacts from a financial point of view when we've closed.

Sorry, if I may follow up on that last point. I mean, historically, nobody seems to have made much money with that kind of businesses. So effectively, you are confident you're going to be able to do much better than the previous orders of this operation?

Yes. We don't intend to lose money, Thomas. That's not what we [indiscernible]

I know. But I think they did quite a bit.

Well, I can't comment on their success or not in managing the asset. We think the asset is an interesting opportunity for us. Obviously, we need to execute on that. But I think as you followed Stellantis and the management, the management is very focused on profitability. And also, as we showed in Dare Forward, we're focused on extending our product offering into the marketplace. And this is a very interesting asset with an interesting footprint, and we feel we can manage it profitably. As we close the transaction, we'll give you a bit more information about the whys and wherefores of that, but it's quite exciting, I think.

Our next question comes from the line of George Galliers from Goldman Sachs.

Richard, just when we look at the revenue bridge, we obviously see very strong performance from pricing and from mix, line items which typically have a fairly healthy drop-through to the EBIT line. Obviously, we're only one quarter in, but is it fair to conclude that development should make for strong margin performance relative to the same period last year? Or in addition to the raw materials and variable inflationary pressures you've already mentioned, is there a substantial fixed cost step-up that we should bear in mind? And then the second question I had was whether you have any insights into the U.S. consumers' sensitivity to higher interest rates? And what that could mean potentially for price/mix when U.S. consumers are looking to spec that large pickup trucks and SUVs.

The answer to the first question is yes. So as you say, obviously, a large part of the price and a smaller but significant part of mix comes through to the bottom line. So I think first half margin performance should be healthy, and we continue to focus on double digit for the year, and the first half looks that we're going in a very positive direction. In terms of U.S. consumer, yes, I think the U.S. consumer is always focused on certain sort of vehicles. So to your point, the question is the level of equipment and the versions that they purchase if interest rates move up. I think the usual level of financing and the competitiveness in the market at the moment, the type of increases we're seeing aren't creating any significant impact on the consumer demand. But it's fair to say, obviously, if rates start to take off, then given the high level of finance sales, there would be an impact. Frankly, I don't think that's the short-term issue. I think the bigger risk potentially is used-car values when and if supply comes back -- when supply comes back. But again, as we talked about, the current supply continues to be constrained, and we're seeing a very strong pricing environment. And I think based on what we see today, we expect that to continue for 2022, and then we'll see sort of medium term what happens. Again, it all goes down, I think, to us what we can control. And we have a very strong product lineup. We're very focused on our cost base and, therefore, our profitability. You've seen our profitability in North America relative to our competition is very strong. And I think bodes well for us continuing to be successful in that region. So not particularly concerned about rates in the U.S. at the moment.

Our next question comes from the line of Stephen Reitman from Societe Generale.

Question, focusing on North America. Clearly, a very strong performance there. Can you talk a bit more about the performance of the Grand Wagoneer, the Wagoneer, and the Grand Cherokee L. What are you seeing in terms of mix, the demand for high trim levels and the pricing. Are you getting the vehicles into the over $100,000 level for the Grand Wagoneer sort of top line version as well and also the kind of ramp that you'll see on those vehicles.

Yes, Stephen. So we are definitely pricing it in the sort of segments you're talking about on the Grand Wagoneer. It's, as you know, not uncommon for newly launched vehicles to have positive and high mix at the beginning of their life. I think the Jeep brand going into this new segment with two very competitive vehicles is doing very well on the high end. I think probably where we've been a bit less competitive is on the lower end because we haven't fully launched all of the versions, particularly on the Wagoneer. So that is in progress. So I think our volumes and overall profitability through those two vehicles will continue to improve. We shipped something like 15,000 units in the first quarter. So I think we have a lot of scope to continue to improve our overall contribution. Clearly, it's an exclusive vehicle. So we're not pushing volume. We're making sure the price position is the driver, and then the demand is maybe dictated by the quality of the vehicle and the offering that we're giving the customer. But so far, the indications on both vehicles are very strong, and the price points are very, very high. In terms of the Grand Cherokee, similar story. We had something like 100,000 units of total Grand Cherokee in the quarter, which is a mix of the old WK version and the new WL version. We're now in the process in gen-up of transitioning to the WL 2.0 as well. So that's going to have some level of impact on Q2, but nothing -- given the constraints we have on semiconductors, nothing significant. And I think it's quite exciting as we continue to ramp up volumes of the WL. We'll see the full opportunity that the new WL gives us in the marketplace with both of the plants in the Detroit complex building the new vehicle. So I think Jeep continues to be very strong in the high end, but the more challenging thing has always been selling Jeep in the smaller SUV segments, and the WS continues to show the strength of the brand in the higher price points. We're actually seeing quite good performance also from the Jeep Compass in North America at the moment, which has been revamped and is performing quite well, which is also very positive because that's where we want to create demand and loyalty to the brand in the lower end because, frankly, as we get up to the larger vehicles, the brand's always been very strong.

Our next question comes from the line of Jose Asumendi from JPMorgan.

Can you hear me now?

Yes, we can hear you now, Jose. It happens to me all the time.

Three items, please. First one, if you could comment please on the weeks of process properties you had in the first quarter or maybe how many units of production you lost and maybe can you help us put this into context into the trend into Q2? Is it getting worse? Is it getting better? The second, I know you don't talk about profitability by brand, but can you help us understand a bit better what have you been doing in terms of fixed cost reduction or product launches within Fiat brand either LCV or passenger cars to improve, I mean, substantially the profitability so far? And then three, I look at your share price, and clearly, it doesn't reflect the level of execution you are -- I think you are delivering, and you will show in the first half with I think a very strong set of results in H1. And then I look at your peers, the best class -- the best-in-class peers report quarterly earnings. Is this something you could consider or something you have discussed? I think you will help a lot the market to understand better your high level of execution.

I'm doing it now. I'm going to have to ask you to repeat the first question because I didn't get it.

Volume weeks of production disruption Q1 [indiscernible]

Understood. So we -- yes, last year, we gave you sort of losses compared to planned production. But given that now planned production includes losses, it's a bit -- I don't think it's a fair comparison to do. So we're not giving you the sort of impact of semiconductors, per se. I think the level of view of Q2 is going to be positive compared to Q1. It normally is from a seasonal point of view as we ramp up April/May/June going into summer selling season. And obviously, January is always a short month because of restarting the plant. So I would normally expect Q2 to be better. It's true that semiconductors are unpredictable. But I think from a financial point of view, I'm not concerned because we're performing very well in terms of our margins as you can see from the revenue walk, I think. And so the big challenge is to manage the supply chain, and we do expect to see improvements through the year, although it's going to be step-by-step as we look at the starting point here, minus 12%. I mean, last year, Q1 we said was down 11% because of semiconductors. And Q4 was down 20%. So if you look at stupid math, you could say that we're down at a similar level probably to Q4 so sort of flat. Hopefully, we'll see some improvement in the second half of the year, but I'm not expecting a huge improvement in Q2, frankly. In terms of profitability by brand, I think we don't report the numbers by brand, but I think we're seeing positive trends in profitability across the brands you mentioned in Europe on the ex FCA side both because of pricing and discipline on the mix. And also as we look at new products coming up, I think we're being more efficient on the spending of capital, which is going to help our margins as well because a lot of the synergies that we talked about last year and which, obviously, we're continuing to work on EUR 3 billion plus last year. A lot of that was related to lower levels of capital expenditure on the ex FCA side as we get the synergy benefits of the merger. So I think from a fixed cost point of view, definitely more efficient. That's driving better margins long term. And in the short term, pricing actions are helping. Obviously, purchasing also will start to kick in more from a structural point of view as we start to launch vehicles on the common platforms, which will start in the next 12 months as we launch vehicles in Europe on common platforms with the PSA vehicles. In terms of the share price, if it was simple as doing quarterly earnings, I suppose I'd do them. Seems to be a reasonable investment of time. I think -- honestly, I think we need to continue to execute. The level we're doing, there's clearly a disparity between our performance and the share price. But I think our view is we need to manage the business, and time is a resource that we need to think about carefully. And so giving an update on a quarterly basis is not something that we're considering at the moment from a full financials. But I think what's important is that we continue to execute and people are going to realize that this is a sustainable level of profitability and that we can keep this plan moving as per the Dare Forward plan that we presented. Obviously, there are going to be ups and downs as we go forward, but I think the management team has a lot of credibility. The results are clearly -- are there for everyone to see. I suppose I and some of us need to do a better job of making sure that people pay attention to them. I'm happy to discuss with you the relative benefits of quarterly earnings. That's fine. But I think what I can say is that, so far, we're very pleased with the results. We're not very pleased with the share price. It's something we need to work on.

The next question comes from the line of Gabriel Adler from Citi.

Thanks for taking my questions. My first, I wanted to come back to the Share Now acquisition because I just wanted to understand really a bit better the mechanisms at which you think you can improve the profitability of this business because it's very clear that it's challenging to operating businesses profitably because they require very high utilization of the fleet. So is it mainly related to the scale of Stellantis and competition fleet? Or are you planning to meaningfully change the way the business operates? And then my second question is on North America, on the market share gains you're making in North America. Do you expect these gains to accelerate through the year as you ramp up on the new products that you've already discussed? You think you've made most of the progress now already when it comes to market share gains?

Well, in terms of profitability, yes, I think we're at double-digit margins 12 months ago or so. No one expected car companies to operate at double-digit margins. Now everyone is operating at double-digit margins. We all seem to think it's normal. I think, for us, and if you look at the history of PSA, especially, but also FCA, I think margin has always been a primary driver of measuring the health of the business and its ability to generate value through the cycle. And so we have some clear levers that we manage on a daily basis in terms of making sure that the margins are robust across all the business units and that we can't have any stragglers that are in the red for any period of time because it's just not -- it's not conducive to this type of industry where the capital -- we're very capital-intensive, and there is cyclicality. So we need to manage the health of that business through the cycle. We also, I think, given the merger, I think we have -- we still have a lot of opportunity to improve our efficiency on the investments we're making, and the new products that will be coming out on the common platforms, I think, will be a very interesting opportunity for us to continue to improve the robustness of our profitability. And if you consider that pricing at the moment is -- has some level of anomalous nature because of scarcity of product, I think our view is that we'll continue to be very focused on price and getting fair value for the product that we put into the market. Obviously, the product needs to be competitive and innovative. And as we do that, then we also have a significant volume base that, if we can manage that properly locally, regionally and beyond, then we should be able to have in the top quartile or beyond the top-quartile level of competitiveness on cost. And we've shown that in terms of CapEx and R&D, we're best-in-class in terms of efficiency. So I think we're managing all the levers. Plus, we're also looking at new business areas, as we talked about earlier with mobility, the Finco in North America, which is a huge opportunity for us in terms of profitability if you look at us compared to the competition. That's somewhere where there's a lot of money being made in our competitors' P&Ls, and we need to get our fair share. So I think we have Maserati, which isn't pulling its weight today but has product coming and should start to make money. And we have opportunities in EMEA, IAP and China. So I think we have clear areas where we can continue to improve our overall profitability, but we need to be very careful managing the cost base. On the market share in North America, we don't -- our primary target is not market share, just to be clear. And going back to your first question, our primary target is margin and profitability and cash flow. And so we'll price the products at the level that make the financials work properly, and then we need to attract consumers through the competitors of the product. And it would appear that with some of our brands in North America, well, most of them actually so far, have performed very well in their respective segments. And I think the fact that we have different brands in different segments, very focused and very clear to the consumer, what they do or what they don't do is a big advantage for us. Dodge has a clear mission in the muscle car segments and does a great job there and makes very good margins and is very competitive. Ram's growth is clear to everybody over the last sort of 10 years in terms of share, profitability, mix, price point, everything. Jeep is clearly moving -- continuing to move forward. Chrysler is going to be very interesting opportunity I think that we will give you more information on as we work through the positioning of the brand and the product. So I think market share in North America, ultimately, should go up, but it will go up because we'll be focused on product.

Our next question comes from the line of Philippe Houchois from Jefferies.

I have a few questions from me. The first one is on the Ram BEV, you'll unveil the product in the fall of '22. Just wondering if you're going to take orders, or I would ask you, what are you going to tell us, but that defeat the purpose. But I'm just wondering from the feedback you're getting from dealers, are they upset with you that you don't have an electric pickup and Ford and GM are ahead of you? Or is this not really part of the main discussion or feedback you're getting from the dealers? That will be my first question. The second one was on raw material headwinds. So we knew you were going to probably raise the EUR 4 billion you had initially given us, but you haven't really quantified it. Are we talking 10%, 50%? I mean, Ford & GM pretty much doubled up the headwind. And if you can clarify that, that would help. And then also what we heard from Ford and GM is mostly that Ford will just basically offset with price and GM will offset with price and will also maybe delay some spending on EV for the future. So the market doesn't like it because its perception that just playing with price is not sustainable. And it's not your management. It's basically the market is giving you that opportunity. So just trying to gauge how much cost opportunity do you still have in North America in those synergies? We can all see the synergies on the European side. Other parts of the business in North America is a bit more difficult. So are you confident in really cost because, eventually, when prices normalize, if you worked on the cost, you'll retain the margins better than if you just work on the pricing. So if you could clarify that. And last point for me on the Finco. When you build a Finco, is all the earnings going to be purely accretive to your earnings? Or is there a bit of a tradeoff that some of the earnings that you get today not having one will basically disappear, not questioning in terms of provisioning or discounts or that type of commercial activity? Or should we think that anything you get out of the Finco is going to be accretive to your group earnings?

Good question. So on the Ram BEV, I'm not the Ram brand guy, so it's not my job to make any announcements early. So I think as we said, we will be making announcements on it. And when there's a -- when Mike Koval's ready, he will do so. To my knowledge, we're not getting any pressure from the dealer body regarding electric pickups today. Frankly, we're doing very well with Ram in the marketplace, and we'll definitely be very focused on the Ram BEV, and we'll get you informed as soon as we're ready. In terms of the raw materials, in my opinion, and I will give you a better view in H1, but it's going to be probably up to 50% higher, the impact, right? So that's the sort of rough number, which, if you look at -- like I said, if you look at it on a run rate revenue point of view is like 3.5%, 3.75% of revenue, and you saw 7% of price in the quarter. So I think we are ahead of the curve, but the raw material impact will be more than the EUR 4 billion we talked about, but we're managing appropriately. And to your other point, there are cost opportunities in our North America business because of synergies. And also, frankly, because we have a much greater focus on the plants and the efficiencies in the plants. It's also true, yes, in this current environment with stop-go on semiconductors and other components, frankly, not only semiconductors. It's a little bit tough to run the plants at their highest level of efficiency. And we've been doing a lot of benchmarking internally to look at our transformation cost and our total cost of product across the North America region and comparing to the rest of Stellantis. And I think there are significant opportunities to improve our cost levels. So it's not just a pricing game in the way we look at offsetting the impacts of inflation. It's also a cost game, and we're very focused on that. So I'm not concerned about our ability to offset the raw material impact from what I've seen so far. In terms of the Finco, they will basically be accretive because we don't -- in North America, we get very little economic benefit from the revenue and the income generated by our financing partners. We don't have anything like the sort of arrangement we have with our JV partners in Europe where we get 50%. In North America, it's minimal. So clearly, we need to put capital into the Fincos, and as they build their portfolio at the beginning, there will be some level of provisioning that will need to ramp up as well. As you know, when Fincos grow, the initial provisioning does dilute their earnings. But the earnings that we will get will be accretive. And then as the portfolio stabilizes, they will look like everybody else in terms of the generation, which will be positive to our business. And I think also importantly, the loyalty that the fact that we will control the customer interface a lot more directly is really important in the overall equation of the Finco plus the fact that we'll be offering a more complete service to the customer. So the team is really excited. The team from First Financial is really on it. And I think we're starting to put products into the marketplace on a pilot level and they're ramping up through the second half of the year.

The next question comes from the line of Charles Coldicott from Redburn.

I've got a couple, please. So firstly, inventories haven't really restocked, as you mentioned, and that's still around 800,000 units. Do you have an idea of what you think is an ideal amount of inventory that you would like to have, assuming a normal market environment? And then secondly, on cash, in your long-term strategy presentation back in March, you talked about using cash to pay down long-term debt and also to reduce the negative net working capital position and also at some stage to fund the U.S. pension. And to what extent should we expect action on each of those uses of cash in 2022? Or are they things for further down the line? And actually, if I can squeeze in a final one, there's been a lot of talk from some of your peers recently about splitting the businesses between ICE and BEV portfolios. Given it's a hot topic, could you share your view on the merits of such a proposal.

Okay, Charles, thanks for the questions. So inventories, obviously, it depends on the market conditions, what the absolute number is, but I think if you look back sort of 12, 18 months at the combined inventory of the two businesses, we were well north of 1 million. It was like 1.5 million, 1.6 million. We're not going back to that level because I think we had too much. So we manage the inventory like we manage the cost base. At the moment, it's a little bit on the low side. but we won't be going back to the levels that we looked at before. And I would have said 1 million or a low 1 million sort of number would make sense, a couple of hundred thousand more maybe would put us in a better much -- in a stronger position to give our customers faster delivery, but I don't think we're looking at anything like the sort of historic levels. In terms of cash, I think we're -- the cash to pay long-term debt is -- obviously, it falls due. So I don't think there's going to be any significant impact in 2022 as we sort of look at gross debt, net debt, but it's more of a medium-term activity. Net working capital, we might see some marginal impact in 2022, but it's not -- that's going to be -- take us a few years to work on it, and it's also going to be a gradual process. So I don't think it's going to drive any big one-off impacts on cash. And the U.S. pension, I don't believe we'll make any significant contributions this year also because I think we need to we get a more stable view on interest rates as we decide how much we need to put into the pension. Clearly, it's one benefit of interest rates actually going up is our deficit's going down. And so we need to look at it carefully the type of funding that we need to put into the pension in a rising interest rate environment. So I think -- I don't think we'll be doing anything this year. In terms of the split that people are talking about, ICE, BEV, et cetera, personal opinion, I don't honestly see huge benefits to doing that. I think we need to manage the company and the assets we have through this transition, and there are benefits to having the cash flow being generated by the internal combustion business to drive the technology investments that we need to make. And the overall -- the stakeholders in this company, we need to manage them all, including the employees. And I think this is a team effort to get -- go through this transition. And I don't -- I think we're definitely looking at a number of new business areas being faster and more agile in the way we manage those businesses as we talked about in our Dare Forward presentation. So we're definitely not averse to looking at the structure of the group to drive speed and more entrepreneurial behavior where necessary. But I think we aren't anticipating any big changes to the structure of the group because I think we're in this to manage the assets that we have through the transition. And the benefits of -- and the synergies that we get through the merger, we need to realize them. And that means managing the assets as a whole. That's my view.

Our last question comes from the line of Harald Hendrikse from Morgan Stanley.

Richard, two quick questions, please. The relative performance of the U.S. business versus Europe was pretty astounding, right, and obviously pushing you more and more towards the more profitable North American market. Just wanted to ask you if any of that strategy as opposed to underlying conditions, i.e., even if you were able or allowed with the supply chains to take back the volume in Europe, do you actually want that volume, which is obviously lower [indiscernible] and lower profitability? And then the second question, just on that financial services question you had earlier, just can you clarify, is there an arrangement between you and your finance companies in the U.S. relative to residual value gains. My understanding was without the financial services business, you were not benefiting from those residual value gains. Can you confirm that for me?

Yes. So on the second question, substantially, that's true. We have different partners with slightly different arrangements today, but yes, substantially, we don't get any significant improvement directly from residual value gains. Obviously, we get indirectly through the value of consumers' trade-ins when they buy new cars, but we don't get the residual value impact on the portfolio. Sorry, your first question is escaping me now.

Just Europe versus U.S. was really extreme, wasn't it? And I'm just wondering whether you're actually managing that specifically.

Yes, thank you. No. I mean, our European business made 10% margins. So it's a profitable business, very competitive amongst its peers, arguably the best performer in Europe. Hopeful that everybody reports their regional results but absolutely very important to us and one of the two key engines of our current financial performance, so we absolutely want more volume in Europe. There's no doubt that we're definitely not moving away from European volume. We frankly got impacted by a handful of supply issues that have disproportionately impacted our European products. There is some level of commonality between the products on either side of the Atlantic but not that much. So in reality, it's just specific issues hitting the European products and conditioning our ability to build cars in the quarter.

Thank you very much. I will now turn you back over to your host.

Okay, guys. Well, thank you very much to everybody for attending the call, and have a good day.

Thank you very much for joining today's call. You may now disconnect your handsets.