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

Hello, and welcome to the Stellantis Third Quarter 2022 Revenue. My name is Saska, and I'll be your coordinator for today's event. Today's call is being recorded. I would now like to hand you over to your host, Mr. Andrea Bandinelli, Head of Investor Relations at Stellantis. Please go ahead.

Thank you, Saska, and welcome to everyone joining us today as we review Stellantis revenues third quarter 2022. Earlier today, the presentation material used during this call, along with the related press release was posted under the Investors section of Stellantis Group's website. Today, our call is hosted by Richard Palmer, the company's Chief Financial Officer. After this 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 over to Richard Palmer, CFO of Stellantis.

Thank you, Andrea. Good day to everybody, and good to be with you all. As you know, we are reporting our shipments, revenues and commercial performance today as we do for all Q3s and in Q1s. So moving to Page 4. We present the key highlights for the quarter. So our revenues in the quarter reached EUR 42.1 billion, up 29% year-over-year and reflecting a 13% increase in our consolidated shipments with continued strong net pricing performance. We also benefited from positive FX translation mainly due to the devaluation of the euro against the U.S. dollar and the Brazilian real. We'll address the drivers for revenue performance in more details on the next pages. For the quarter, we have again achieved the highest U.S. ATP across our portfolio versus our direct peers with an average transaction price of EUR 53,000 per unit for the quarter. In North America, our market share was down 20 basis points from the prior year at 10.8%, with a 70 basis points drop in the U.S., more than offsetting market share gains in Canada of 250 basis points and Mexico of 40 basis points. Our American rooted brands continue to show great sales performance versus Q3 2021 with the success of models such as the Dodge Durango, up 39% and the Charger up 23% as well as the Chrysler Pacifica, up 42% and the Ram ProMaster up more than 50% However, the Jeep brand was down 17% year-over-year, mainly due to the discontinuation of production of the prior generation Grand Cherokee in Q1 of this year and the continued production ramp-up at Jefferson North Assembly, where we are now producing the next gen [ 20 ] Grand Cherokee alongside the Dodge Durango, complementing the new generation [ 20, 30 ] and the PHE versions already being produced at Mack Assembly. In South America, we maintained our leadership in the region with a 22.6% market share, despite 150 basis points drop versus the prior year with our closest competitor lagging by nearly 10 percentage points. We also maintained market leadership in Brazil and Argentina. Our total sales were up 5%, thanks to the solid performances of the Fiat Strada, which remains the #1 selling vehicle in Brazil and also the new Fiat Pulse and Jeep Commander as well as the Fiat Cronos and Peugeot 208, which are the #1 and #2 selling vehicles in Argentina. In EU30, our total sales were down 7%, while the industry was down 2%. We suffered continued production disruptions from unfilled semiconductor orders as well as outbound logistics challenges due to railcar, truck and driver shortages as well as ship availability. As a result, our market share decreased 90 basis points to 19.2%. We then nonetheless continue to capitalize on our very successful lineup. In the Commercial Vehicles business, we continue to be the market leader in both South America and the EU30 with 30.8% and 29.2% market shares, respectively. We're continuing to execute on our Dare Forward 2030 electrification road map, evidenced by our strong year-over-year improvement in global EV sales. Net sales were up 41% year-over-year to 68,000 units mainly driven by strong demand for the Fiat 500e, the Peugeot e-208 and the Opel Mokka-e. LEV sales reached a total of 112,000 units, up 21,000 units versus the same period last year, also highlighting the success of our PHEVs. Our BEV product strategy is continuing to gain momentum. In September, the Jeep brand announced its plans to become the global leader in SUV electrification, starting with the launches of 4 all new BEVs in North America and Europe by 2025. The first of these is the all-new Jeep Avenger which was unveiled at the Paris Auto Show with pre-bookings for the first-edition opening the same day. In September, we also announced that our Mirafiori Complex in Italy will be home to a new electrified transmissions assembly facility with our joint venture partner, Punch Powertrain to increase production of the future generation electrified dual-clutch transmissions for Stellantis hybrid and plug-in hybrid vehicles. The facility is expected to open in the second half of 2024 and will complement the existing capacity in Metz, France. The Mirafiori Complex will also be home to our first Circular Economy Hub, which will open in 2023 and will ensure sustainable manufacturing and consumption models. These 2 major initiatives will power our efforts to become a sustainable mobility tech company and support our Dare Forward 2030 strategic plan. Next, moving to Page 5. We focus a little bit on the all-new Jeep Avenger. As commented before, the Avenger is the brand's first fully electric SUV and will be available in Europe at the end of Q1 2023. We're thrilled to bring such a great product to the market as it fully embodies the Jeep brand's DNA, all within compact dimensions and zero emissions with a range of 400 kilometers in WLTP equivalent to 550 in urban cycles, we believe the all-electric Avenger will be successful in one of the most competitive industry segments. Its mission is simple, to become the best-selling model within the brand's portfolio in Europe by 2024 and show consumers that the leading SUV brand in the world believes that 4xe is a new 4x4. The Avenger, which will be produced in our Tychy plant in Poland, will be equipped with the first electric motor to be launched by e-motors, our joint venture with Nidec. Finally, we have no doubt this vehicle will strengthen our already very competitive BEV lineup of Stellantis furthering our electrification plans. On Page 6, we show the shipments and revenues for the group for the quarter. As commented before, our consolidated shipments were up 13% in Q3 to 1.3 million units benefiting from an improvement in semiconductor order fulfillment versus the same period last year, which was significantly impacted by specific issues in the supply chain in Malaysia due to COVID outbreaks. Our net revenues grew by 29% to EUR 42.1 billion, supported by the increased volumes by strong net pricing, favorable mix and positive FX translation. Regarding the semiconductors, the third quarter 2022 shows some incremental improvements. However, we continue to see volatility in the supply chain. We are implementing various short, medium and long-term actions to better protect supply. Looking ahead, we believe that we will continue to see sequential improvements, but we don't expect the situation to be back to normal before the end of next year. Next, on Page 7, we show the walk from Q3 '21 revenues to Q3 '22. All segments posted positive year-over-year growth in revenues with the main contributors being North America, Enlarged Europe and South America, up 36%, 16% and 56%, respectively. Volume and mix contributed EUR 3 billion with North America and Enlarged Europe growing at a similar pace with volumes up 47,000 units in North America and 68,000 units in Enlarged Europe. These 2 regions were also the biggest contributors for vehicle net price and content, adding an aggregate of EUR 2.5 billion versus prior year. Pricing actions were also strong in Middle East and Africa and South America. North America accounted for more than half of the positive impact coming from vehicle line mix with South America contributing an additional EUR 200 million. FX translation effect was also a very strong contributor in the quarter with a EUR 3.4 billion positive impact. Moving to Page 8. We review the segments. Starting with North America. As mentioned, our market share decreased by 20 basis points to 10.8% in a market that was down 1%. Total sales reached 445,000 units, down 4% with shipments of 441,000 units, up 12%. This led to a minor reduction in our dealer stock levels, which finished the quarter at 300,000 units, while our company inventory increased by 10,000. Shipment growth was driven by Durango, Compass, Cherokee, Wagoneer and Ram 1500, with Grand Cherokee down due to the discontinuation of the prior generation, as already mentioned. Revenues were up 36% or EUR 5.5 billion, with higher volumes as well as favorable net price and vehicle mix, all contributing as our new products continue to sustain the region's ongoing strong performance. FX translation due to the stronger U.S. dollar also impacted very positively the Q3 revenues. Moving to enlarged Europe. The industry was down 10% year-over-year for the quarter, mostly due to the impacts of the war in Ukraine on Russian and Ukrainian markets. The EU30 market was down slightly at 2% down. Our total sales in enlarged Europe were 591,000 units, down 7.5%, but exceeding our total shipments of 538,000 units. As a result, our [indiscernible] dealer inventories were down 38,000 units from June. This reduction was despite year-over-year improvement in production levels and was caused by outbound logistics challenges, which are impacting the industry as a whole in Europe. Shipments were still up 14%, mainly due to increased volumes of the Fiat 500 and Panda, Peugeot 208 and 308 and Citroen C3. Shipments were also up due to strong demand for our BEVs such as the Fiat New 500 and the Opel Mokka-e. Revenues were up 16% to EUR 13.5 billion, primarily due to the higher volumes, positive net pricing and improvements in vehicle mix on new revenues which were driven by recently launched vehicles and increased BEV volumes. Regarding Middle East and Africa, our market share was up 100 basis points to 11.1% and in an industry down 4%. Total sales were up 5,000 units in the region with our improved performance in Turkey, more than offsetting the volume loss in Egypt due to import restrictions and logistics delays. Consolidated shipments were up 6% year-over-year to 52,000 units, driven by increased volumes of Opel Mokka, Peugeot Rifter and Fiat Ducato. Those are partially offset by less of Peugeot 3008 and Jeep Wrangler and Grand Cherokee due to ocean freight logistics challenges. Revenues reached EUR 1.3 billion, up 27%, driven by strong pricing actions, which more than compensated for the Turkish lira devaluation. Moving to Page 9, and starting with South America. Our market share was down 150 basis points to 22.6% in the market up 13%. We can highlight the strong performance of the all-new Fiat Pulse and Strada selling 17,000 and 37,000 units, respectively. Those 2 models, along with the all-new Jeep Commander and Citroën C3 and partially offset by reduced volumes of Toro and Renegade drove a 15% increase in shipments in the region. Revenues were up a very strong 56% to EUR 4 billion, supported by higher volumes, as mentioned, coupled with favorable net pricing and mix and positive FX translation. Regarding China and India and Asia Pacific, consolidated shipments were up 11% to 30,000 units, thanks to the recent launches of the all-new Citroën C3 and Jeep Meridian in India. We also recorded higher volumes in the region for the Peugeot 2008 and 3008 as well as the Ram 1500 more than offsetting the drop in volumes for the Jeep Compass and Renegade. Revenues increased by 20% year-over-year to EUR 1.1 billion, and [indiscernible] regions benefited some positive effects coming from higher volumes from the India launches, partially offset by negative market mix, strong net pricing and favorable vehicle mix and positive translation. Finally, Maserati shipments were up 14% to [ 6,600 ] units. This was mainly driven by the recent launch of the all-new Grecale which contributed around 3,000 units in the quarter as well as higher volumes of the MC20 partially offset by less Levante and Ghibli volumes, particularly in China and India and Asia Pacific. Here again, higher volumes, positive net pricing and favorable FX more than offset the impact of a higher mix of the all-new Grecale, which has a lower average price point than the rest of the portfolio. This led to a 23% growth in revenues. On Page 10, we present the status of our new vehicle inventory. When comparing against the end of June, our dealer inventories declined from 704,000 units to 651,000 units at the end of the quarter due to seasonal declines in most regions, but mainly in enlarged Europe, down 38,000 units. This compares to a decline in Q3 last year of 231,000 units, which was abnormally high due to significant production interruptions as a result of Malaysian COVID outbreaks impacting semiconductor supply chains. Company-owned inventory increased by 134,000 units since June. This was due to a combination of increased production in Q3, reaching 1.4 million units, up 19% year-over-year and outbound logistics challenges mainly in Europe, with the region accounting for approximately 90,000 of the 134,000 unit increase. Our teams are working on a daily basis to ease these challenges and bring alternative solutions to smooth deliveries of vehicles to our dealers and final customers and we expect company-owned inventory to substantially reduce by year-end. Finally, on Page 11, we review our full year outlook and guidance. Looking ahead, we have maintained the outlook we provided during our H1 '22 goals -- goal at the end of July for all regions with the exception of China where we've increased our forecast from stable to plus 5%. We continue to see North America down around 8% and enlarged Europe, down around 12%, due mainly to supply chain and logistics challenges not so allowing us to meet demand, which last year was met in H1 by the strong reduction in dealer inventories. We see South America and Middle East and Africa remaining stable, while India and Asia Pacific will increase plus 5% for the year. On the back of our strong performance over the first 9 months, we confirm our full year 2022 guidance of double-digit adjusted operating income margin and positive industrial free cash flows. Coming into the last quarter of the year, the successful launches we have had at the end of last year and earlier this year will continue to bring further benefits to our already competitive lineup. We're on track to achieve another successful year. Lastly, but very importantly, I want to reiterate the Ram brands announcement of a couple of days ago. We look forward to welcoming you to the Ram Revolution electrification and technology event at CES in Las Vegas in early January where the Ram 1500 Revolution BEV concept will make its worldwide debut. Thanks to all of you for attending this call. We can now move to Q&A.

[Operator Instructions] Our first questioner is George Galliers of Goldman Sachs.

The first question I had was just on the price/mix sequentially if we were to kind of factor out the FX. Did you see the price/mix continue to improve sequentially in the third quarter versus the first half? And is there any reason why it would be any worse in Q4 versus the year-to-date runway rate? And then the second question I had was just with respect to what you're seeing in the end markets. Could you perhaps just elaborate on where your greatest concern lies today? And from a sort of timing perspective, when do you think that the deterioration we're seeing in the macro is most likely to start to impact your financials given the order books? Is it the start of next year? Is it midpoint of next year? Or would it be later than that?

Thanks, George. In terms of price/mix, we continue to see strong performance across the portfolio. You saw about 7% on price, a couple of percent on mix year-over-year and also sequentially, we continue to see improvements. So I think we'll continue to see strong positive performance also in Q4 on price/mix. In terms of end market concerns, it's a bit of an ongoing debate we all have, I think, where demand given that it's somewhat concealed by the supply challenges that we have. So if we look at our main markets, we continue to see very strong demand in North America, I would say. And we're also having more challenges on semiconductors in North America at the moment in our portfolio than we're having in Europe. So the fact is that our vehicles are turning very fast on dealer lots in the U.S. And the real constraint at the moment continues to be supply due to semiconductors, but also due to some logistics challenges, both for us and for our suppliers in the North America market. But I think, so far, we're not seeing any particular concerns in terms of the demand function given the very fast turn that we're seeing on dealer lots. In Europe, obviously, the macro in Europe is more challenging, which gives me [ pause ] personally. At the moment, we continue to see good demand and also vehicles turning fast on the lots. And in Europe at the moment, our semiconductor challenges compared to last year are less evident. Production was up, I think, 26% in Q3 in Europe. So a good strong improvement, but you didn't see that going into shipments number because we're having a lot of challenges with outbound logistics. So we only got 14% improvement in shipments despite the 26% improvement in production. And I don't think we can say that's demand issue at the moment. It's our ability to fulfill orders. We have a strong order book, which gets us well into Q2 of next year. So I think at the minute, if we -- if I were to tell you where I have a concern, it would be more Europe than anywhere else, really based on the macro. But we do have a strong order book today, which gets us well into the middle of next year. And then it comes down at the moment in the shorter term, it's more a challenge of us fulfilling orders and shipping the units to dealers and customers.

Understood. It sounds like you're in a similar position, I guess, to the rest of us in terms of the supply constraints make it very difficult to forecast at the moment when you will actually see that kind of matching of supply versus demand?

Yes. Because at the moment, we can't build enough cars. And the ones we can build in Europe at the moment, we're struggling to get them to the point of sale. So I think those are the 2 biggest challenges we have and continue to be a big focus. I think it's true to say that the European context is looking pretty tough from a macro point of view. So clearly, we continue to focus very much on maintaining a very healthy breakeven point across our business globally, so that we're ready for any eventual softness in demand. But at the minute, that's not the primary concern, frankly.

We now move on to our next questioner, which is Philippe Houchois of Jefferies.

Yes. I've got 2 questions. The first one, on Finco, you're building a Finco right now in the U.S., you don't have one in Europe. As a CFO, would you rather be in the current position and not having to deal with the Finco for the next 18 to 24 months? Or would you rather have a Finco already operating despite the risks that are accumulating on real values or funding costs?

I think, Philippe honestly, I'd rather have a well-run Finco. I think I think through the cycle, it's an asset. I mean obviously, you can pick and choose your moments for having certain assets in the portfolio, but that's obviously not realistic. So I think I'd rather have a Finco, a well-run Finco because it gets us closer to our customers and the loyalty part of the equation. And as we go into some changes in the way people are buying mobility, I think the Finco becomes even more strategic potentially. So I'd rather have one. And I think we're making good progress on the U.S. Finco following the acquisition. It's proceeding very well in terms of launching products into the marketplace and we expect to see a pickup in activity as those products become mature in the market in 2023. But I understand your point, but I think a well-run Finco with the appropriate separation from between the Finco management and the management of the sales and marketing function in the [ Karco ], which is obviously something that everybody who does that has, I think it's an asset.

Okay. And can I ask about your China setup now. So if I understand correctly, for Jeep or Maserati, you're going to be an exporter and you're going to continue operating joint ventures and dealer network with the Peugeot and Citroen brands. Any conversions of these? I mean, are you able to leverage your relationship with Dongfeng or the dealer network to have a proper presence for the Jeep and Maserati brands? Or are you kind of locked into a relatively niche position for Jeep? What's your thinking there?

I think we like keeping them separate. I think the Jeep brand has a network, the Maserati brand has its network. I think it's an asset to have a dedicated network given the fact that those brands have a very distinct customer target. And in terms of the export model that we're looking at, clearly, we need to have a very clear focus on certain parts of the Chinese market because we're not going to be a volume player. We're going to be somewhat of a niche player with very attractive products going in to satisfy certain types of customer demand, but I don't see any benefit in putting together networks where today we have separation and separation is normally something helpful to distinguish for those types of brands.

Up next, we have Tom Narayan of RBC.

It's Tom Narayan, RBC. So my first question has to do with Slide 10. I think you said the company-owned inventory will come down significantly by year-end. Just wondering how this might translate into Q4 in terms of shipments and unit sales? And then the second question, just curious as to your specific Italy production exposure as it might relate to nat gas. Obviously, Italy is another country that has significant Russian nat gas exposure.

So yes, in terms of Page 10. Clearly, we have, as I mentioned, a higher level of company inventories than we've had in the past. And you can see that by looking at the page. We're probably about 100,000 units long compared to where we would want to be. And we expect that number to come down. I think Q4 shipments, last year, we were around 1.6 million units. As I said, I think in the H1 call, I think the type of volume we're looking at is probably a similar level to last year. So I don't have any reason to change that. And the biggest challenge we have there is to resolve the challenges we're having in Europe on outbound transportation. In terms of Italy exposure and nat gas, I think the good thing about our footprint is that we are diversified. So we have exposure in most of the main European jurisdictions. They may or may not have more or less exposure to Russian gas, but I think we have a fair amount of flexibility in the footprint to be able to build cars. Obviously, in France, Germany, Spain, Italy, Czech Republic, Poland. So we have a lot of flexibility. So I'm not particularly concerned about any one jurisdiction any more than any other, frankly. It's not visible where problems might arise, and if they do, we do have compensating factories that can continue to produce and that's the main message.

And we now take a question from Thomas Besson of Kepler Cheuvreux.

A couple of questions, please. Richard, with these positive price/mix trends and volume shaping to be broadly at last year's level in Q4. Is it reasonable to believe that the second half of the year could look like the first in another prospect assuming you managed to source some of the distribution issues in the logistics issue in Europe.

Yes, I think that's a fair description. I think the bigger challenge we have -- well, we have 2 challenges. One is not new to you. That is semiconductors because semiconductors at the moment is impacting more on North American business, which obviously, from a profitability point of view is a big contributor. So we're managing through that. And then in Europe, is the outbound logistics is the biggest challenge, which we obviously are very focused on. But those issues are we think we can manage them through the H2 performance. And I don't see any significant reason why we should be significantly different in H2 compared to H1 in terms of margins. In terms of cash flow, we would be slightly different because obviously, there's a different seasonality -- and we expect more CapEx R&D in H2 compared to H1 and some other activity on restructuring, et cetera. So I would expect our cash flow to be lower than H1, not significantly so, but slightly lower because the H1 was very strong, over 5 billion. But overall, I think our H2 numbers should be quite comparable.

Another one on Maserati, you are just ramping up Grecale and you have a lot of new products coming in. Can you give us just some qualitative comments on the turning points we are seeing in that business? Do you manage this time around to make it something that can last and not the boom and burst as we have seen in the past. I don't know what exactly you can tell us at this point?

Yes, you strike to let my call when you talk to me about the boom and burst of Maserati. But you're right, it has been our past pattern, and I'm pretty confident personally that we can break that pattern with the new team and the product plan we have. I think we have a good level of stability in the product plan. The frequency of launch is a big focus, which I think in the past has been our biggest issue because we launched a vehicle and then we sort of left an excessive gap to the next new vehicle and it's just held in the portfolio. So I think the important thing for us now is to have a good frequency of launches to maintain enough novelty value in the lineup and to continue to refresh it. And I think the team in Maserati is doing a great job of that. Starting with Grecale, I think Grecale will be our first important step. And then we have GTGC, and then we have other vehicles that you know about coming which will help the brand get to the types of margins you would expect from a luxury car maker. So I'm very positive about it, Tom.

From UBS, we have Patrick Hummel with our next question.

My first question is simply about the supplier cost situation. Some of your competitors had pretty steep increases their supplier costs, also some retroactive payments. So I'm just curious what situation at Stellantis in that regard. And if you can already, some initial expectations for next year as far as the total supplier and commodity cost complex is concerned? That would be my first question.

Yes. So we're definitely having similar impacts. Our -- the sort of normal type of productivity you'd expect from our purchasing function. We're not getting it, being totally offset by the need to support our suppliers through some of their cost increases due to challenges on their supply chain. So we are seeing that. It's sort of baked into our numbers. And also, we did move very fast on the price function. And I think we continue to see positive price/mix, which is offsetting both raw material inflation, other types of inflation on logistics, and energy and also claims some suppliers for some of their challenges on the cost base. So all those things you're seeing, and you saw some of that in our H1 numbers, you'll see more of them in our H2 numbers. But you'll also see continued benefits from the commercial organization on pricing and mix, which offset those impacts. So in terms of 2023, I think that will continue. So we'll continue to see positive carryover from pricing actions, continued pricing actions, a lot of discipline on pricing and on inventory and production to ensure that we don't get into a situation where we have too much stock or too much supply. That doesn't appear to be a high risk at the moment given the semiconductors continue to be a challenge and we expect them to continue to be a challenge for you in the first half of 2023 at least. So -- and I think what we will see in 2023 is a lower impact from raw material inflation than the one we're seeing this year. So the [ entity ] of the inflation impacts, I think, will be lower in 2023. Obviously, we're working on 2023, and I'm not going to get into giving you detailed guidance. But I think directionally, price will continue to be positive. Inflation may be higher on other elements of the cost curve, but they are of a lower entity compared to raw materials this year and raw materials will be down compared to this year in terms of impact. So I think we're relatively confident continue to see strong earnings supported by price/mix offsetting the cost challenges.

Understood. And my second question is just in terms of potential action that might help the share price over and beyond just good execution of the operational business. You must have, by now, pretty strong visibility on second half cash flow. And I'm just curious if you have any updated thoughts on capital allocation. And the B part of that question is also when it comes to the portfolio, you have seen that Porsche has listed very successfully in the market. Maserati, you talked about in a fairly upbeat manner with a more stable high-margin business in the years ahead. Is that something you would be revisiting as a potential stand-alone company anytime soon?

Well, regarding Maserati, I think I can respond in terms of anytime soon. Any time soon, I think the answer is no because clearly, we need to continue the launch of the brand with the products that are coming. And I am very optimistic and confident that we can build a very interesting luxury car business with the Maserati brand. And eventually, at some point in time, that may be an interesting asset that can stand in the market on its own because clearly, it has a very strong brand, it has its own network and substantially a very independent type of business, even in the way we run it inside Stellantis. So I think that's a possibility, but no decisions have been taken. And at the moment, we're very much focused on the execution of the plan and to make Maserati a very sustainable luxury brand and strong performer. In terms of the capital allocation. I don't have anything new to say. I think our cash flow is strong. We're going to execute on our 2022 numbers here. We do have, I think, as a primary focus, the execution, I think execution is underappreciated in this context. And so I think investors are very focused on the execution. They're going to see that we continue to perform very strongly and despite the challenges facing the industry, I think we have a very strong and diversified brand and business portfolio. And I think that has to be the primary focus for us regarding the stock price. And then secondly, clearly, the technology part of the equation is also key. We're going to be talking about the Ram, BEV, truck in January of next year at CES, which we think is clearly a very important point where we can underline the progress we're making towards the launching of an electrified pickup in North America, which will be very competitive and very technically advanced. And I think we've seen that the Jeep vehicle that we talked about today, the Avenger in Europe, which I think is really important to sort of start to further incrementally change consumers' views of Jeep following on from the PHEV that we have in the market today as being a technical and green brand. I think all those things are really key. I know the dividend is also going to be an important part of the vast capital allocation. I think our results for the year will be strong. Our payout percentage will give shareholders an important dividend payout or all else being equal as we go through the rest of this year. And then we'll continue to look at all the other options. But for the moment, I don't have anything more to say on capital allocation.

Understood. And as you mentioned, the truck, do you expect it to be eligible to the full EV tax credit, including the battery part from the beginning?

Well, obviously, we're launching our battery facilities in North America in '24, '25. So there'll be some level of transition as it goes through that launch process. So immediately, we haven't announced anything in terms of eligibility. I think we're in a similar place to our competition. We obviously, we're transitioning into electrification, and there's a lot of ongoing activity on the supply chain. So we'll be more specific about that as we get to close of the launch.

And we now move on to Jose Asumendi of JPMorgan.

Couple of questions, please. First one, can you comment on your confidence you have to maintain strong pricing power in North America? Which key variables or metrics are you looking to maintain this strong pricing power, maybe when it comes to production or inventories? Second, can you comment on ACC on the battery ramp-up and how the operations are running and three? Can you comment please on working capital for the second half? How should we think about that into the year-end?

Jose, thanks for the question. So North America pricing, I mean, the key, obviously, is to manage the product portfolio. I think we have some great products in the market for Ram, for Jeep, for Dodge. We need some new product for Chrysler, and that's coming. I think our portfolio has never been better and is extremely competitive, and that's the primary reason why we're confident about being able to maintain strong price positions. Secondly, as you mentioned, inventory, we're not going to grow inventory significantly beyond where we believe is the right level. We've seen some level of increase in inventory. But in reality, at the moment, the vehicles turn very fast on dealer lots. We have a lot of in-transit inventory more than we would normally expect to have because of the supply chain challenges and because of logistics challenges. So I think the numbers taken at face value don't tell the full story. So for the minute, the inventory is not a problem. The real problem is meeting demand and getting a stable supply function, both from a supply build and outbound transportation point of view. So we're very focused on that execution. And I think we're quite confident in terms of pricing because of the speed of units turning on dealer lots as I mentioned. The ramp of ACC is on target. We continue to execute with our partners with Mercedes-Benz and with Total [indiscernible], nothing untoward in terms of the trajectory. So we're excited by that joint venture. I think it gives us a lot of a lot more autonomy than [ pure buy ] and more autonomy, frankly, than pure JVs with the battery manufacturers. I think it's an interesting step that will allow us to become more and more competent in battery cell manufacturing and extend the verticalization of our supply chain. So it's performing on track. Working capital for H2 really depends a lot, honestly, on how far we can reduce our company inventory levels that I talked about earlier in the call in terms of new unit inventory. We would normally expect working capital to be slightly positive in H2. And so that would still be my expectation, although compared to a more stable industrial environment, we do have the challenge on logistics, both inbound and outbound, and we're holding more inventory as a result to try and buffer against supply shocks. So I don't think working capital will be a strong cash generator in the second half, I think, is going to...

Our next question now comes from Charles Coldicott of Redburn.

In the U.S., it looks like incentives on some Stellantis models are a bit higher than peers. So I think, for example, the average incentive on a Ram pickup is significantly higher than the Silverado or an F-150. I think incentives are quite high on the Wagoneer as well. But at the same time, as you mentioned, the turn of vehicles at dealer lots is very quick and you're reporting really high ATPs higher than your competitors. So can you maybe square the circle a little bit for us? Are you happy with the tactical incentives in the U.S.? Could they come down a bit more? Yes. That would be my first question.

Yes. Thanks, Charles. So I think on the incentives, it depends on a monthly basis. People make moves, people don't make moves. And so I think as you say, if you look at our ATPs being higher than our direct competition and if you look at our margins being higher than our direct competition, I think that is a good indication of the fact that our net price positions are very competitive. And I think we're very happy with those net price positions and the jobs that the sales teams and the brands are doing in North America to get full value for our very competitive product lineup. So I think it's maybe some of the data you look at depends on the month, depends on the vehicle line. So overall, I think we've got a very strong price position compared to our competition. And we've frankly improved it over the last 2 years from where we were, where we had some level of discount to Ford and GM on pickup. And now we don't. So I think that's just been a very positive trend that the North America team has implemented. On your second question, which I've now forgotten.

I haven't asked it yet, actually. My second question -- my second question was going to be on currency. Can you talk a little bit about how we should expect the impact of currency on your bottom line given the breakdown of your costs and any hedging policies you have?

Yes. Well, our biggest exposure exposures from a currency point of view, from a transactional point of view, are really Canadian dollar, British pound. So on both of those, there's been some weakening on the currency. We do have hedging, different percentages going out, on average, up to 3 years. So we do have some level of hedging, which insulates us from the initial moves in the spot FX. So I don't think that's going to be a big issue in the short term or in the medium term, honestly. We don't have a significant net exposure to U.S. dollar-euro either way because we do -- we have some level of transaction exposure on the commercial side, but it's also offset by transactional exposure on the commodity buy that we have in dollars. So in the -- but -- so the biggest impact we have is translation of the U.S. dollar results, the real results, the Turkish lira devaluation and the Argentinian peso devaluation. Those things hit us and the Argentina hurt us in our financial charges because of the deval. And Turkish lira does the same because of the hyperinflation. So you can see them in the P&L also year-to-date. So I don't expect any significant changes in those going forward you're already seeing. And the teams are doing a really good job pricing for those. So far, as I've mentioned on a number of occasions on these calls, both the South America team and the [ EMEA ] team. So overall, the big impact on currencies at the moment is really translation and Canadian dollar and British pound.

And up next, we have Pierre-Yves Quemener of Stifel.

Sorry, I dialed in a bit late into the call, but the day is back with a lot of competing events. Back to the pricing question. The pushback I get on your name is that Stellantis pricing might begin to fade, macro is worsening and you won't be able to simply offset in cost inflation into '23, albeit with a different mix, less raw mat, more labor, probably more energy inflation. How do you address that kind of push back? And the second part of the question is would you be able to state right now that you would expect any price reversal into '23?

I don't expect any price reversal, no. I think we need to be very disciplined on pricing. Now obviously, the fact is that, that statement has a lot of assumptions based on what the market environment is going to look like. But I think we've shown that we have sort of industry-leading discipline on pricing. So if we're suffering, then others will be suffering more. That's my view. And that's partly because we have the best or at least as good as anybody's brand portfolio. So the fact that we have a very specific focus on brands in specific segments, I think is a definite plus in terms of our ability to find the best opportunities from a pricing point of view. I think our product portfolio is extremely competitive in all of our jurisdictions and our team is doing a great job of continuing to maintain a very strong product portfolio. So I think we have a good story to tell there, based also on the last 2 years of performance and even prior performance from the management team. So I'm quite confident that we will be a very strong relative performer in terms of pricing. And then you mentioned inflation and the impacts going into '23. I don't know whether you were on the call but I'll sort of try to articulate that. It's true that what you say is true. The raw material inflation next year will probably be will be lower than the impact we had this year on raw materials based on what we see in current market conditions. And other cost areas will probably be higher inflation. But those cost areas generally have a lower overall buy level than the raw materials. So I would expect that the overall inflation impact next year would not be at the same size of this year. I'm not obviously giving you guidance for '23 yet because we're still working on it. But directionally, that's how I'm looking at it at the moment.

And you will -- you are fully confident to be able to offset those foreseeable inflation, though you won't quantify at this stage, obviously.

Yes. I mean, like I said, I think it's a relative game, right? I think relatively, we are very disciplined on pricing and our target is to continue to offset the inflation with very disciplined pricing.

Okay. One last on inventories, if I may. You referred to if I understood you correctly, Richard, an excess company inventory of 100,000 at the end of the third quarter, Will that completely unwind in the fourth quarter or just a fraction of that number?

Well, I didn't give you a number. I expect us to substantially unwind.

And we're now moving on to our last question for today, which comes from Martino De Ambroggi of Equita.

The question on inventory. I remember you guided for 1 million units as the ideal level of inventory. And when do you plan to achieve it? And could you split the [ ideal ] level for North America and Europe. And the second question is on price, but from another perspective, if you could split the 2.5 billion positive pricing content impact in Q3 among the different regions? And just a follow-up on the raw mat, okay. Next year will be lower. I remember the last indication you provided for '22 was EUR 6 billion. This was just for raw mat and probably didn't change. But what are the other inflation costs on '22.

Martino. in terms of raw mats, I mean, we haven't given a number on other inflation impacts. So focused -- I think we're pretty confident we can offset them into the second half and maintain strong double-digit margins. So that's all I want to go into at the moment. I think in terms of looking into '23, as I said, the overall impact of raw materials I think is going to be significantly down from the EUR 6 billion. It's not going to be 0. So -- and obviously, the mix is changing between steel, which was a big driver of the negative impact this year. and moving more towards battery metals and particularly lithium [ help a lot ]. And so that's going to be a more significant part of the overall impact. But as I said, overall, in terms of [ inflation ], I think the important thing is that we continue to offset with price/mix and as you -- your question on pricing, the EUR 2.5 billion of net price, I think 3/4 of that is coming from North America and Europe. And probably 3/4 of that is North America. So North America continues to be a big driver of positive pricing. But we're seeing, frankly, strong pricing across all the regions. From a percentage point of view, everybody is at a similar level that you're seeing around 7% to 8% year-over-year, and we're getting that type of impact across all the regions because -- and some are much higher because Middle East and Africa needs to offset the inflation -- sorry, the devaluation of the Turkish lira, South America is offsetting big challenges on inflation and on currency. So it's very much a broad-based effort on the pricing.

And the inventory?

Yes. I mean inventory, I don't -- I think we're high on company inventory at the moment. As I mentioned, on dealer inventory, we actually went down, partly because we couldn't ship enough cars into inventory in Europe. So that was the main reason why we were down. I think you mentioned 1 million units. We talked about 1 million to 1.2 million type areas being maybe the sweet spot at this sort of current size market, but it also -- you need to go beyond the sort of face number and into the fact that at the moment, the big challenge we're having is a lot of the inventory is not on the dealers' lots. So even if it says dealer inventory, that includes the in-transit inventory to the dealers, particularly in North America because basically, as soon as we get the vehicle out of the plant and into transportation, it becomes dealer stock, and that dealer stock needs to get to the dealer. And what we're seeing is very fast turn times once the vehicles are at the dealer. But we're having some struggles getting the vehicles there as fast as we used to, particularly, from Mexico into North America -- sorry, into the U.S. and across the U.S. as well because of rail issues, but also road haulage as well. So Logistics is hurting us a lot and that may mean that the number of -- face number goes up, but the reality is that we need to hold up more inventory than we would in an efficient scenario because of the challenges on the extended supply chain. So I'm not worried about the level of inventory in an absolute sense. I think the problem we have is that the inventory is not in the right places. And you can see that from the company inventory. But even within the deal inventory, that is still a challenge. That's why we need to continue to improve the fulfillment of the dealer and customer orders.

So am I right in assuming the normal level will not be achieved until second half of next year?

Honestly, normal -- like I say, the big focus is to get the inventory on to the dealer lots and into the hands of the customers. And at the moment, that's being a bit of a struggle. So I don't think the actual number is the focus, frankly.

We have no further questions in the queue.

Well, I'd like to thank everybody for joining the call and spending time looking at Stellantis' Q3 numbers. Look forward to talking to you all again soon. Have a good day.

Thank you. That concludes today's call. Thank you for your participation. You may now disconnect.