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

Hello, and welcome to the Stellantis Q2 2026 Financial Results Call. [Operator Instructions] I now give the floor to Mr. Charles Christman, Head Investor Relations, to begin today's conference. Sir, the floor is yours.

Thank you. Hello, everyone, and thank you for joining us today as we review the Stellantis Q2 2026 results. Earlier today, the presentation material for this call, along with the related press release were posted under the Investors section of the Stellantis Group website. Today, our call is hosted by Antonio Filosa, Chief Executive Officer; and Joao Laranjo, Chief Financial Officer. After their prepared remarks, Antonio and Joao 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. As customary, the call will be governed by that language. Now I will hand the call over to Antonio Filosa, Chief Executive Officer of Stellantis.

Thank you, Charles. And thank you all very much for joining us today as we discuss our quarter 2 results. Our second quarter execution and financial performance reflect the meaningful progress that the team and I have been focused on delivering over the last 12 months. All key financial metrics are significantly improved year-over-year. Net revenues are up 13% and AOI margin is up 120 basis points. Industrial free cash flow is positive EUR 1 billion, up EUR 1 billion compared to last year. This year-over-year improvement gives us confidence in our full year '26 financial guidance, which we are reaffirming again today including our expectation that we will have positive industrial free cash flow in 2027. We set out our Fastlane 2030 strategy and its financial targets at our May 21 Investor Day. And this quarter 2 results demonstrate that we are very much on track in our journey towards those targets. In quarter 2, we made strong and significant progress on industrial execution. Through the good work of our operating teams, we have stabilized production and are running our plants much more efficiently. Year-over-year, overall production efficiency was improved 870 basis points in North America and 170 basis points in Europe. We also kept improving quality with 3 months in service quality, improving 38% in North America and 24% in Europe. And we are making encouraging daily progress in the implementation of our value creation program, VCP. And as we shared with you at Investor Day, partnerships are a key pillar of our fast line 2030 plan. The announcements we made give you a strong sense on how attractive Stellantis is as a strategic partner, both to other OEMs and to leading names in the tech space. We are also making good progress with the execution of our large-scale new product line. One of the key strategies in our first-lien 2030 plan is to invest in our brands, invest in our products and expand market coverage. In line with this plan, we are excited that we have introduced all new RAM 1500 DRx SRT, the DS #7 and the Panda ICE H1. Alongside the 6 refreshed vehicles, including Opel Astra, Cibaca and Pago 408, which is gaining strong momentum in Turkey. The Ram daCoda introduced in Brazil in early '26 is also delivering strong sales performance in the region's largest profit pool. We look forward to the 9 remaining new and refreshed vehicles still to come this year, and we are laser focused on executing every 1 of these launches on time with the right cost and with the right quality. Now let me touch on some Q2 highlights from a regional perspective. In North America, -- we keep making significant progress in improving performance powered by our great brands, our great products and our great people. Sales in quarter 2 were up 6% year-over-year for a fourth consecutive quarter of year-over-year gains. Ram was up 12% year-over-year. Chrysler was up 54% with the launch of the new Pacifica and Jeep Grand Bagonir also posted significant gains. Overall, market share was up 40 basis points in North America including 50 basis points in the U.S., Canada market share was also slightly up and Mexico with its strongest second quarter on record. Let me share a few highlights on Ram. The Ram 1500 was a key driver of both volume growth and profitability in the quarter with strong demand for the reintroduction of the legendary MEV 8 engine. Building on that momentum, -- we are now shipping the highly profitable Ram 1,500 TRX SRT to customers, just 6 months after its a billing. This is the first off-road product from our SRT Performance division, which we relaunched only 1 year ago. This product follows the Dodge Durango SRT launched in December '25. And the SRT Masco truck, the Ram Rumbold, arrives later this year, right on plan. As we presented during Investor Day, SRT brings unique capabilities and the powerful halo effect across all our lineup while delivering margins from 2 to 3x higher than comparable non-SRT variance. Still on the product side. We have the upcoming Jeep Recon BEV and the Jeep Grand begone REV launch coming this year. Now a few words also on our U.S. dealer inventory. The increase in June was the result of a proactive decision to support new product launches and powertrain offerings such as the Ram hemis for instance, ahead of the sale that we expect to achieve in the coming months. It was also driven by a temporary buildup in advance of our planned summer production shutdowns. Based on preliminary sales rates in July, we expect that in July, you will see inventory already reduced it from June levels. Turning to Europe. Growth in Europe was driven by strong demand for smart card platform nameplates such as Citroen C3 and C3 aircrafts, Opel Frontera, Fiat Grand Deana. Resulting in a 3% year-over-year increase in Stellantis brand sales in quarter 2, including LIP model, sales were up 7% year-over-year supported by the success of the T03 and the B10. This growth also reflects the acceleration we are seeing in the European passenger car BEV markets. where Stellantis BEV sales increased by 20% year-over-year by 61% year-over-year when including LEAP model. In light commercial vehicles, our Pro 1 division maintained the #1 position in the Euro with over 28% market share. The ongoing product of fancy Europe will further strengthen our growth drivers. First, through the expansion of the Smart car portfolio with the upcoming Fiat Grizzly and Fiat Fast back. We will also have a broader coverage of the C SUV segment with the new GP Compass for [indiscernible] as well as the recently launched the DS #7 and the upcoming Lancagamma. Finally, LEAP represents another important growth leader and keeps gaining commercial momentum. Quarter 2 '26, sales decreased 6-fold year-over-year making LEAP motor the fifth largest Chinese automotive brand in the region. Turning to South America. We maintained our clear overall leadership position in the region. We are #1 in the region's 2 major markets with over 26% market share in both Brazil and Argentina. We also further saddened our leadership in Picastrack in Brazil. 1 of the region's largest profit pool, with rent sales increase by 10% year-over-year. Moving now to Middle East and Africa. We delivered the resilient results in a declining market with market share increasing 20 basis points despite an 8% decline in total industry volumes. The region achieved the #1 position in light commercial vehicles and maintain its #2 position overall. Lastly, in APAC. June deliveries reached a 6 [indiscernible], and we have localized LEAP model-branded vehicle assembly Malaysia for C10 with the Bitnlaunch on track for the third quarter. We also announced that the partnership with Dongfeng to develop and manufacture Pago and GV models in China. So in summary, we are continuing the positive trend of quarter 1 with significant year-over-year improvements in all financial metrics. And our strong disciplined execution keeps driving significant improvements both in quality and industrial efficiency. Let me now you to Joao to walk you through the numbers. Joao?

Thank you, Antonio. Good afternoon and good morning, everyone. Q2 was another quarter of year-over-year improvement, in line with our full year guidance for 2026. Let me start with the key financial figures. Consolidated shipments were 1.6 million units, up 10% year-over-year, with growth driven by North America and Europe. Net revenues were EUR 43.5 billion, up more than EUR 5 billion or 13% compared to Q2 of last year. This improvement was driven mainly by the higher volume in North America, which was up 122,000 units year-over-year. Adjusted operating income was EUR 773 million in Q2, improving by EUR 560 million compared to Q2 of last year. AOI margin was 1.8% and representing a 120 basis point improvement year-over-year. The key drivers of the year-over-year AOI improvement were volume mix had a positive impact of EUR 376 million, reflecting higher shipments in North America and Europe. Mix was unfavorable, mainly due to LED penetration in Europe partially offsetting the volume improvement. Net pricing was negative EUR 456 million, mostly driven by pricing in Europe. Industrial costs improved by more than EUR 1.9 billion. This was driven by 3 main factors. First, we continue to improve our operational execution, manufacturing efficiencies and purchasing savings, including those related to VCP more than offset increased raw material and tariff headwinds. Second, we had no repeat of prior year warranty costs from recall campaigns in Europe. Finally, the reduction of regulatory expenses in North America. SG&A costs increased by EUR 317 million, largely reflecting higher market expenses to support volume growth. Lastly, Foreign exchange and other had a negative impact of EUR 861 million, driven mainly by the Turkish lira devaluation, the nonrepeat of indirect tax credit in Brazil in the back of lower residual value in the used vehicle business. Moving to industrial free cash flow. Industrial free cash flow was positive EUR 1 billion in Q2 an improvement of EUR 1 billion year-over-year. The improvement was driven by 3 factors: first, higher AOI. Second, positive seasonal working capital dynamics associated with higher Q2 volumes. Third, a lower run rate of CapEx and R&D spending during the quarter. The time of these investments remains fully aligned with our FaSTLAne product plan and is reflected in our full year guidance. We continue to expect full year CapEx in R&D spending to be 6.5% to 7% of net revenues. These benefits were partially offset by provisions, including approximately EUR 300 million of cash outflows related to H2 2025 charts. Now looking at inventory. Total inventory increased 20% year-over-year to 1.4 million units. The increase primarily reflects the launch of new and refreshed vehicles and power 3 offerings and is consistent with our expectations for sales growth. As Antonio noted, dealer inventory also includes a temporary buildup ahead of the customary summer production shutdowns. As a result, we expect July inventory levels to be meaningfully lower than those recorded in June. Turning to our regional performance. North America delivered AOI of EUR 284 million, with an AOI margin of 1.6%, representing a year-over-year improvement of EUR 724 million. This is mostly driven by higher volume, including the around 1,500, Jeep Grand Vagon, Bongo ICE and the Chrysler Pacific. Shipments were up 38%, driven as we have already noted, by the launch cadence of our new products and build ahead in advance of the preplanned summer shutdown. It was also driven by year-over-year improvement in industrial costs and the reduction of regulatory expense. In Europe, AOI was negative EUR 94 million, an improvement of EUR 265 million year-over-year. The region continues to experience pricing pressure which partially offset the positive impact of improving manufacturing efficiency and purchasing costs in the nonrepeat of EUR 474 million of recall campaign costs in 2025. In South America, we delivered AOI of EUR 402 million. Volume was down slightly year-over-year, with a decline in Argentina, more than offsetting gains in Brazil. The performance of the region remains resilient despite a challenging market and increasing competition. The AOI was in line with prior year, excluding the nonrepeat of EUR 334 million of indirect tax credits in Brazil. In Middle East and Africa, we grew market share and delivered an AOI of EUR 329 million. These strong results were achieved despite the ongoing regional conflict, which resulted in an 8% decline in total industry volumes. In Asia Pacific, AOI was up 35% to EUR 27 million, with industrial cost improvements more than offsetting foreign exchange headwinds. Looking ahead to the rest of the year. As previously stated, we are reaffirming our 2026 guidance as well as our expectation of achieving positive industrial free cash flow in 2027. Before concluding, I'd like to share a few observations regarding the remainder of the year. Our guidance assumes net expenses of EUR 1 billion to EUR 1.2 billion, including the impact of the IAPA credit recognized in Q1. This represents a modest improvement from the EUR 1.3 billion previously communicated. Our industrial free cash flow guidance also reflects approximately EUR 2 billion of payments related to H2 2025 charts, of which EUR 0.9 billion was paid during the first half of 2026. We CapEx and R&D spending are expected to be 6.5% to 7% of net revenues in 2026, consistent with the approximately 7% outlined in FaSTLAne plan. In the second half, we expect financial performance to be weighted towards Q4. Q3 will be impacted by the summer shutdown and continued raw material inflation, while Q4 is expected to benefit from higher volume and a stronger ramp-up of VCP initiatives. I will now turn it back to Antonio to wrap up before the Q&A.

Thank you, Joao. Before we move to the Q&A, I would like to step back and reflect on the big picture. I hope all of you either had the opportunity to attend our Investor Day or to view the presentations online. You will see that our FaSTLAne 2030 strategy addresses in a structured way, the core issues that we face as a company and capitalizes on our biggest opportunities. We are fully focused on executing our plan, which will deliver significant benefits as we build a stronger Stellantis for the future. Nothing can be fixed overnight but I would like to highlight 3 items that are our top 3 priorities. First, market coverage, discontinued products from '21 to '25 led to a reduction in our market share, both in North America and in Europe. You have seen early progress in our market share gains this year. FaSTLAne 2030, Reinvigorate the product portfolio getting us to around 90% market coverage in both regions, representing a huge opportunity for growth. Second challenge, industrial cost. We have improved significantly in the past year, and this remains a big opportunity to drive our financial performance. In FaSTLAne, VCP will deliver EUR 6 billion of annual run rate cost reductions by '28. We are making strong initial progress on VCP and we are on track to implement 40% of the initiatives by the end of this year. This means that in '27, we expect to enjoy EUR 2.4 billion of AOI benefits plus the partial benefits of the initiatives we implemented in '27. Finally, quality. Our execution on quality in the past was not what it needed to be but we have come a long way already in the last year. Quality has improved significantly by 38% in North America and by 24% in Europe. And FaSTLAne 2030s given the quality organization, the focus and the resources they need to be in the top quartile in all regions and segments where we compete by '28. It will take time to fully capitalize on these opportunities, but it is a time frame that is fully embedded in our '26 guidance in our expectation of positive industrial free cash flow in '27 and in our '28 FaSTLAne targets. The road is long, but we are moving in the right direction with the right priorities and with the right pace. Thank you. We will now ask the operator to open the line for questions.

[Operator Instructions] And the first question comes from the line of Stuart Pearson from Oxcap Analytics. Stewart, we can't hear you. Maybe you're on mute. Your line is open. .

Hopefully, you can hear me now, my mistake. Too many calls today. I guess we have to start with North America and the lack of operating leverage there. Obviously, very strong shipments coming in. Obviously, we've seen, I guess, our expectations another weak margin there despite cost support. So I mean can you just dig into a little bit more -- why we're not seeing that? Is it pricing that's really eating into that whichever bucket in the bridge that might really fall into? And what would it really take to get those North America margins up? And what are the building blocks I guess, into 2027 that can give us some confidence on that. And I guess 1 of those just sort of partly self-host, I guess, is going to be the industrial cost driver. There's obviously a huge benefit there at EUR 1.9 billion. And obviously, it seems reserve credits of that. But maybe you can help us understand what's really in there. What are the examples of actions that try kind of cost tailwind in the second quarter? And should we expect or what rate should we expect that to continue in the second half and end into 2027. I know you've talked about the VCP plan. But could we take the H1 run rate or at least most of it and extrapolate that?

Okay. I will take part of this question, and then I will pass to Joao rest. So what is happening in North America is, number one, the trajectory is the right one. The trend is the right one. So if we compare AOI of Q2 versus AOI Q1 net of IPA refund, then we see a significant and meaningful improvement as we see an improvement in shipments in market share, for instance. Now it's important to say to repeat what I just mentioned at my closing remarks. We have a plan, partly in 2030. It is a good structural than articulated plan and this plan addresses in North America and globally, the 3 major challenges that we see in our company. One of those is industrial costs. We have an industrial cost gap and we are addressing that daily with VCP. And VCP will deliver, as mentioned, EUR 6 billion of cost saving run rate in '28. We are on track to fully implement 40% of the initiatives that we have identified and they are many by the end of '26. That means that we -- '26 will enjoy in of cost savings plus all the extra that will come from the additional initiatives that we really executed in '27 itself. So you asked some tangible example. So VCP, when it comes to cost worth mainly on major driver in our cost structure. One is material costs, this is the cost of component and system we use in our cars. And here, we have to leverage the purchasing leverage to negotiation and the technical leverage to implementation of technical savings. And those technical savings for instance, new technologies that represent the same or better performances of our products with lower cost, for instance, with material that keep the performance of the product where they are, but they represent the containing, et cetera, et cetera. The second driver is transformation cost. This is the cost of our manufacturing system in our plans. And on there, we have tons of projects to improve efficiency. This is why our efficiency in our plants in North America is consistently and meaningfully improving since last year. So you see that today, our efficiency run in around 89%, which is a very good result, and that represents 870 basis points better than prior year. Here, the projects are really thousands. The third driver of cost that VCP addressed to projects and initiatives is logistics and distribution costs. And in this case, also the projects are many -- for instance, we are optimizing our routing from suppliers to plants and for plants to the yards. We are increasing the loading of our logistic tools, thus saving cost. Or simply, we are combining warehouses or we are shutting our warehouses, and we are putting that space in our plants. And this is the third driver of efficiency that VCP will address. Again, with the objective this year to fully implement by the end of '26, 40% of the main initiatives mapped that will deliver EUR 2.4 billion of AOI savings improvement in 2027. And then the EUR 6 billion in '28 as a run rate. And Joao, do you want to take the rest of the question?

Yes. So from the industrial cost of EUR 1.9 billion, slightly more than 70%, about EUR 1.4 billion. it's split between purchasing material cost savings and warranty. On the warranty, the largest piece, it's the recall recorded in future last year in Europe. So most of that is because of the nonrepeat. On purchasing, it's the work that we are doing to reduce product cost as we have discussed in the Investor Day. And that is a number that we will continue to see it improving and accelerating as we evolve with VCP. The other items that are also included on the industrial costs to give context, our logistic costs and manufacturing, which we also saw improvements given the meaningful forms improvement at our plants, as Antonio mentioned on the opening remarks. . And we also see benefits on manufacturing costs because of the higher volume. So there's items that are temporary and also depends on the competitors year-over-year but we should expect to see material cost savings to continue to progress in the second half and beyond. And just to also remind that we expect that raw material continues to be a headwind and growing in the second half versus what we saw in the first half, including Q2 but yes, we see a lot of positives on the industrial costs and especially on the material costs, and we expect to build momentum on that.

And sorry, on the operating leverage side in Q2 in North America just because EUR 400 million volume and mix implies there's quite a negative mix in there, I guess, in Q2. Is that fair? In North America, sorry.

No, the mix was not very negative. Some of that is chain and product content. But the operating leverage of Q2 is consistent with the margins that we have had on the previous quarters. Then Antonio's point, we that is a gradual exercise that we're going to improve as we work on costs and also on warranty. But there was nothing -- anything exceptional to so that is bringing the operating leverage in North America other than the challenges that we have in cost and quality that Antonio already mentioned.

The next question comes from the line of Tom Besson from Kepler Cheuvreux.

I have a question about the shape of H2, you're coming out of relatively easy comps in terms of volumes in the first half, it becomes a bit more difficult in the second. Could you help us understand exactly what you're aiming for in terms of quarter-on-quarter or H1 -- H2 and H2 improvement? Are you going to try to improve on the reported minus 1.7% AOI H2 last year? Or -- are you going to try to improve on the 0.9% underlying AOI if we excluded the EUR 2.1 billion unusual item that you couldn't remove in the second half of last year? And what will be the drivers of improvement as it will be less driven by volumes and as you will face more headwinds from raw materials. .

Yes. So the our targets for H2, it should deliver the best results possible, aligned with the full year guidance. So we are not setting any specific targets for the H2 on this call. The dynamics that we're going to see on the -- that we expect to see in the second half. That's the first half its a headwind of about EUR 1 billion between raw material and then the non-repeat IPA recognized in Q1. And volume should be lower as we saw, we built up inventory in the first half, and we expect Antonio mentioned, to reduce inventory in the second half. But then we expect to see positive mix, we expect price to be constructive, especially in North America, and we expect to continue to make progress on cost reduction. So those are the puts and takes for the second half versus first half performance.

Can I add a follow-up, please. .

Yes, please. .

Okay. Great. On the North American business, to follow up on Stuart's question your truck mix has been extremely strong. in H1, and we still don't see a lot of traction. Could you help us understand what is still -- I understand your costs are not where I would like to be quality is not perfected -- what are the main negative drivers to your NAFTA margins? Is that channel mix? Is that relative pricing as well? Or is it just your industrial costs and some remaining quality issues. .

Yes. So I will take this question, and then I will pass Joao for additional info. So -- as I mentioned in my closing remarks, our plan, which is a good plan, addressing time the major challenges that we see, right? And holding on North America, for sure, we have a quality gap that translates into warranty cost and campaign costs. And this is have been addressed with a very vast quality turnaround plan, which on the new product is already delivering a much improved product quality, [ 18% ] improvement in 3 months in service year-over-year and then the second challenge that the plan address is a cost gap, as you mentioned, which we are addressing with VCP with the trajectory that I already stated EUR 2.4 billion to start in '27 plus all the additional initiatives that we'll implement in '27, up to EUR 6 billion cost saving run rate in '28 and forward. Those are the 2 things that FaSTLAne address in North America and globally at the pace and in time, which is already embedded in all our targets. In the '26 financial guidances that we reaffirm in the '27 free cash flow positive that we reaffirm and in '28 targets that we distributed in FaSTLAne 2030. The notion of time and the time frame needed is already embedded in the plan and we are executing and delivering as we showed in quarter 2 accordingly to the plan. We are on track. Joao?

I don't have anything else to add on. .

The next question comes from the line of José Asumendi from JPMorgan. .

Antonio, just 1 question, please, again on the North America margins. And I'm just wondering, is there a very large opportunity to increase the utilization, the loading of our plants in North America, which then in turn would unlock VCP cost savings, right? But then when I think about this, you need to win market share in the U.S. unit increase production by, let's say, 150,000 units from here, right? I mean, when I look at the capacity of your business and compare it few years from now, there's a very large opportunity to increase production. So can you help me understand the therapy which product cycle, which vehicle segment drives the increase in produce in North America, which I think will drive these cost savings across again VCP and unloading of the plants, which I think is -- when I go back again to the operating leverage we not seen the operating leverage, it must be because the loading of the plant is low. On the first, please. And correct me, please, if I'm wrong. .

Thank you very much, José , for this relevant question. So yes, again, I need to give the notion of what we are doing and on time and on the time that is embedded in the plant itself. So we know that a product gap, as you mentioned, and this product gap, obviously, hearted in the past, we are recovering market share in North America, not only and obviously, capacity utilization. Now we are currently developing very competitive and successful products that we will deliver in high volumes starting from '28. So those are the steps. The step is now we focus on improving quality by daily and focused execution by improving industrial cost as we are doing by daily and focused execution both are happening, and we need to accelerate more. And those will remove warranty costs and campaign costs, together with obviously increased cost saving and industrial efficiencies. Said that, at the same time, we are introducing and we will introduce more the new products. So we introduces already some. As you see, the Ram TRX SRT that will be a great profit contributor has been recently introduced distributed to our dealers just 6 months after an bidding. We are developing and we will launch this year Jeep recon BEV, Jeep Grambagonier REV. And then the high-volume products that we are executing in developed now will be delivered to the market by end of '27 starting from '28. So the steps are those: quality improving, warranty cost and campaign costs removed, cost improving, cost savings into our business, improving commercial efficiency with the lineup that we have and the new products we are introducing to increase volume and saturation and then the big products that are coming by end of '27 starting of '28. Joao do you want to add something?

No, thank you, Antonio.

The next question comes from the line of Emmanuel Rosner from Wolfe Research.

Great. First question is on the second half puts and takes that you provided before, which extremely helpful to understand a lot of the headwinds around raw materials, non-repeat of IEPA, the volume destocking. I was hoping you can just give a little bit more color on some of the tailwinds. What will drive the positive mix in the second half the positive U.S. pricing in particular? .

Yes. I'll start to take the answer, and then I will give the word to Joao. So the headwind that we see are the ones that Joao explained. So we see inflation coming. We see a memory ship shortage. And we see, especially in quarter 3, lower shipment driven by the shutdowns, both in Europe and seasonality in Europe and in North America. Then when we project to half 2 and quarter was specifically, the major 2 tailwinds will be one, again, VCP. So we are meant to implement initiative that were mapped by end of '26, that means that in quarter 4, we will start enjoying an acceleration of cost savings coming from there, for sure. And then we see a constructive environment for pricing in North America specifically. And obviously, we will take that as much as possible. Joao? .

Yes. So on the mix there are 2 things. One will be channel mix, given the seasonality of rental sales, both in North America and Europe more heavily in the first half of the year. And also as we introduce vehicles here in North America, in other regions as well, we see benefits of mix. One obvious example is the RTX on pricing, given the inflation pressures and the raw material inflation that everybody is expecting in the second half, we see constructive price again in North America and in stabilization in other regions. And the third 1 that is very important, it's an acceleration of cost reductions, as Antonio mentioned. But those are the -- so it's really operational and drivers and that we are working every day to improve our business efficiencies as we develop the new products that Antonio was mentioning before. .

My follow-up question is, would you be able to describe for us the competitive environment and traction you're seeing in the full-size pickup market in the U.S. the -- your inventories of Ram particularly elevated, I think around 110 days of the dealers there are some media reports on some pretty large incentives being offered in the month of July. So just curious how much the market traction you're seeing a could you the competitive environment for us?