And so that’s something when we look at how do we succeed in the European market, it’s about being able to make sure that we are able to do both of those things successfully. But I do think that would — that’s when we look at Europe, there have been, you did ask specifically I think about net pricing. Was that right?
Jose Asumendi: Correct. Yes.
Natalie Knight: Yes. We have said when we look at the margin in Europe, there were three factors that drove the margin. Or our sales, excuse me, our revenue and you’ll that will translate also into margin over time is on the one hand we have the higher rental car sales and those again, I think promising, in terms of margin impact versus maybe what’s been expected in the past. But it is an impact. We’ve talked about on the revenue side, love vehicles having, being a lower percentage of the mix. That’s actually, when we think about it from a margin perspective, obviously positive. But the other item that I called out was that you did see lower net pricing in the market. I think, we have some of the best relative net pricing in Europe, but it is a place that’s been a bit under pressure.
Operator: The next question comes from Bruno Dossena from Wolfe Research. Please go ahead.
Bruno Dossena : Thanks for taking my question. We know that Stellantis has a large number of prospective launches this year in the second half. Could you help us think about the impact of these launches on market share and relative pricing as we move through the year, and then longer term, as we’ve seen this general downward trend in market share, especially in North America. And I recognize that a large part of that is intentional due to your evolving product mix, but how should we think about an appropriate trend market share in North America and other, and other key regions as you balance utilization and price and mix? Thanks.
Natalie Knight : Thanks for the question. I think they’re both rather philosophical questions. When we talk about the launches in terms of their impact on market share and pricing that’s indirectly at least a question on our market share outlook. And I think they’re — for us, it’s all about how do we get the best financial performance for this business. And that means we have to find that right balance between profitability and market share. And that’s why I’m excited because new products are key. That gives us an ability to reset market in terms of different pricing. We’re moving heavily into LEDs and BEVs where we have opportunities in terms of both market share because there’s white spaces we haven’t been in as well as pricing opportunities for us there.
When we look at North America specifically, because you asked there about the trend, I actually am very proud of the first quarter that we were able to hold a stable market share that is an accomplishment for us in North America when we look at the last year and a half or so. And that’s despite what we see as a segment mix shift. The US market has become tougher. There’s a bigger focus on smaller and less expensive vehicles. At the same time, it’s something where it’s really important now to make sure that we have the stronger products coming that are going to allow us to continue to fight for the gains as we move there. I am optimistic. I think when we look at North America, our eyes, — the next big target for us is 10%. We have some things to prove before we’re going to get there, but we’re on our way.
Things like that. Big growth of the PHEV where we had almost 80% growth in the period and we were now number two behind Tesla that’s saying we’re attacking, I think, the right segments in terms of where there is future potential growth and profitability. You asked kind of generically about other regions, what I can say when we look at the European market, this is a space where we also see lots of volatility in the market in terms of what’s happening day to day with regulation and different items that are changing there. But we’re very pleased that we were able to just from Q4 to Q1, increase our position by 230 basis points. And there again we’re at a — our vision is how do we get to that 20% threshold? And I think that’s one where — it’s again, very much the finding the right mix of increasing the share, but doing it in a profitable way.
And so, what you’re always going to see from Stellantis is not the big land grab in terms of how do you grab share in a way that isn’t sustainable, that isn’t healthy, but how are those things where we can really create what we believe are long-term opportunities? And that’s why this product portfolio where on the one hand we are able to build share, but we’re able to do it with exciting products that we think really catch the appeal of consumers, but also do it in the background in a very financially secure way for us, get us excited about what the potential can bring. We think we’re really in that spot just in terms of we’re transitioning out a set of current-generation products and getting ready to usher in that new generation, where people will really be able to see the strength of the product portfolio and how we bring in the market.
Bruno Dossena: Okay. Thank you. Just a quick follow-up. Can you just remind us how you’re thinking about the net impact of pricing, specifically relative to the change in pricing net of currency relative to change in variable cost? In essence, do you expect contribution margins to be trending up or trending down this year?
Natalie Knight: I’m sorry. We had a little trouble hearing you. Could you repeat the question?
Bruno Dossena: Yes, sorry. Can you just remind us, how you’re thinking about pricing this year and specifically pricing relative to the change in variable costs? In essence, like do you expect contribution margins to be trending up or down this year? Thank you.
Natalie Knight: I think that’s something that you’re going to see. Obviously, it varies by region and it varies by model. But our goal is always how do we improve our TPC, our costs in terms of the product and that’s something, where we expect that number to continue to decline this year. That’s one of our — we’re working very hard to reduce that number, and that will definitely help us, as we do that. I think it’s also something that is going to be something more than able to compensate the potential price reductions.
Operator: We will now move to our next question from Henning Cosman from Barclays. Please go ahead.
Henning Cosman: Hi. Good afternoon. Thank you very much. Hi, Nathalie. Henning speaking. Thank you for all the color on the margin side. I wanted to please clarify what you said on the free cash flow. Did I hear you right that, you said first half free cash flow clearly down? Perhaps I can then also bring up the consensus figure. I believe the consensus stands at somewhere around EUR11 billion and EUR11.5 billion. Would you be prepared to put that in a bit of context or tell us, if you are comfortable with that figure, just so we get a bit of reassurance on that side as well? Secondly, I think we’ve tried to touch on it from a few angles, especially on the U.S. inventory. Thanks for the comment that you said, it would be trending inline with shipments.
Does that basically mean, you are happy with now the absolute inventory level in the U.S. and we shouldn’t be expecting any destocking going forward at all basically? In that context, if I can just ask you again about how that reconciles with the 10% to 11% margin in the first half? Because if there’s no U.S. destocking, volume shouldn’t be that bad and then pricing is up. You have raw material savings, logistics savings, synergies. It doesn’t quite want to reconcile for me with a margin level of at least the bottom end of the range. Maybe you can help us what we’re all missing as to how to get to that bottom end. Thank you.
Natalie Knight: Okay. Let me start. There were several questions in there, so if I don’t get to each of the individual sub points, remind me. But maybe starting with the free cash flow. As I mentioned in my comments, free cash flow is something that is very important to us at Stellantis. This is what we see as, one of the real core USPs of our business versus many of our peers. So, you can be confident that we are very focused on how do we maximize the free cash flow, especially as we look at the full-year number. I’m not gonna give you a specific full year number. We don’t do that. We’ve just given you the guidance that it’s going to be positive and I hope that the strength of my answer here is telling you how seriously we take it.
When we look at the first half, I wanted to be clear with people, because they are basically two things happening. One is you’ve seen what’s happened in terms of our shipment and revenue development in the first quarter, and that’s something that will have an impact on profitability and that plays into free cash flow. The other one is very strictly just a timing impact in terms of how we look at our R&D, our CapEx, and I’ll call it especially our investments and joint ventures. There are — a lot of them are around batteries and things in the electrification space. And if you look at the last two years, you’ve seen us have probably a split in that spend of, I’ll call it 60% to 65% of it has been in the second half with the smaller portion being in the first half.
This year, that number just flips around, and that’s because those are, that is very much tied to our product launches that you are going to be seeing skewed to the third and fourth quarters. So that’s really the driver of it. But in terms of our confidence in free cash flow generation, our commitment to keeping that strong and steady and what does that mean in terms of consistent shareholder returns? I want to make very clear that continues to be a big priority for the group. The second thing that you asked about was inventories, just in terms of where they are in North America. Are we satisfied with the absolute level? I think your language was a little provocative with would we never change the number again or would we be satisfied with that number forever?
And I think the answer is when we look at our position in North America, I believe we are in a spot where it is in the healthy range. I think it continues to be at the high end of where I as a CFO would like to see it. But I also want to make sure that as we are looking at our inventory, we are able to preserve our pricing power, we’re able to grow market share, we’re able to do things and what is a sensible way, where there is a lot of noise happening in different parts of the US market. So, it is something I made that comment of, hey, watch our inventories to move in line with shipments, because I definitely don’t want us to be in a spot where we’re impeding growth, because we are looking at pushing too hard on getting inventories down on an absolute level.
As I mentioned earlier, for us, it’s all about having a healthy inventory mix and making sure that we’re really getting that balance right between what does the consumer want and need today, and at the same time, how do we bring the right product to market as we go forward? Those are my comments.
Henning Cosman: No, that’s great. And no provocation in intended. I’m just trying to gauge if we should expect in any quarter, wholesale being materially weaker than retail. That’s just what I was trying to get at. But thank you very much for the color.
Natalie Knight : No problem. And don’t forget, if you look at our Q1 figures, I mean, they are below where they were in December, so we are, I think we’re — it’s something where when we do that in a good and healthy way, I think we’re seeing progress on that item. And it is something we care about. We just want to make sure we get all of those factors aligned so we’re not doing it in a way that impacts our ability to really maximize the impact of our new products coming.
Operator: [indiscernible] from Stifel. Please go ahead. Your line is open.
Unidentified Analyst: I would have two follow-ups. The first one would be on the revenues. How should we think about the revenue trend in ‘24? Should we think about revenues being broadly flat for Stellantis with H2, revenues offsetting the softness of the first half? It would be my first question. And the second one is in H2, what would be the biggest earnings driver? Thank you.
Natalie Knight : On revenue trends, I’ll give a little bit the same comment that I did on free cash flow, which is, we’re not giving any full-year guidance and what is different than what we have presented to date, and that’s that — what I’ve said is if we look at our revenues, we’re expecting that macro backdrop to be something that is improving as we go throughout the year. I also mentioned that we see sequential improvements in the second quarter and in the second half. Revenue’s always something that, there’s a lot of different pieces in there. There’s seasonality. I don’t want to get into all of the specifics, but I do think when we look at the second half you will definitely see sequential improvement versus where we’ve been, which would suggest something certainly much higher than what we’ve delivered year to date. On the earnings question, I’m sorry, what was that question?
Unidentified Analyst: It was a very simple one. High level, what will be the biggest earnings driver in the second half of ‘24?
Natalie Knight : Sorry about that. I just wrote down earnings. Three things there really easy. One is of course, the launches. That is something that’s critical for us because that’s where we’re going to, while they may not be huge in volume as they first come out, that’s where you create excitement with consumer, and we definitely have some blockbuster products in there as well. As I mentioned, another one of course is the third engine. We didn’t talk about that much today, but that’s something where we’re very pleased with the development of that piece of our business. I think it’s something where Middle East and Africa continues to go from strength to strength. When we look at just the quality of the business, again, there’s always seasonality in the business, but something where it — I really do believe that that can sustainably be for us, a part of the business where we deliver the highest margins in the group as we go forward.
Also, you’ll see I think, strengthening of the South American market as we go forward in the year. It’s really good progress in the third engine. I could talk about our CVs as well. I mentioned that we’re having a launch of the full van lineup in Europe. It’s definitely a spot where we’ve now got these number-one positions in Europe, in the Middle East and Africa and South America. We really are growing the quality of that business and a big focus on how do we look at that even here in North America in a more substantial way. And the last piece that I would say is, it wouldn’t be a Stellantis question about earnings if we didn’t talk about cost reductions. That’s one of the things we’re very focused on. As I said, you’ll see lower spend on R&D, CapEx and joint ventures in the second half.
We have a lot of our efforts, when we look at the initiatives we start every year, where we see a natural crescendo of those as we go into the second half and that will definitely be the case here again this year.
