Stellantis N.V. (NYSE:STLA) Q3 2023 Earnings Call Transcript

Stellantis N.V. (NYSE:STLA) Q3 2023 Earnings Call Transcript November 5, 2023

Operator: Ladies and gentlemen, welcome to the Stellantis Q3 2023 Shipments and Revenues Call. I will now hand over to our host, Mr. Ed Ditmire, Head of Investor Relations at Stellantis. Mr. Ditmire, please go ahead.

Ed Ditmire: Hello, everyone and thank you for joining us today as we review Stellantis’ Q3 2023 shipments and revenues. Earlier today, the presentation material for this call, along with the related press release were posted on the Investors section of the Stellantis Group website. Today, our call is hosted by Natalie Knight, the company’s Chief Financial Officer. After her presentation, Ms. Knight 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 today during the 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 the call to Natalie Knight, CFO of Stellantis.

Natalie Knight: Thanks, Ed. I’m excited to be here with everybody today and talk about our strong Q3 performance. This was a period where net revenue growth and continued shipment momentum really shone through. We took on critical short-term industry challenges like the union negotiations in North America head-on and made strategic moves that demonstrate we are clearly on track to achieve our Dare Forward 2030 ambitions. Let’s now turn to our first chart. At 1.4 million units, Q3 shipments grew 11% year-over-year, and our net revenues increased 7% to EUR 45 billion. This development was supported by our unique, high-performing Third Engine markets, where revenues were up 25% year-over-year due to the share gains in both South America as well as the Middle East and Africa.

Our efforts on electric vehicles also continue to accelerate. LEV sales grew 50% in the quarter, and we moved back into the number 2 position in BEV sales in the Europe 30 markets. Regaining that spot that we had lost to Tesla in Q2 and setting ourselves up to finish the year and enter 2024 with strong momentum. This is especially exciting because of the significant expansion of our electrified offering next year, including, for example, the all-new Citroen E-C3, which we unveiled two weeks ago. Arriving in Q2 2024, this car, which is pictured here on the chart, it looks great. It meets industry expectations and all EV performance metrics, and it’s a leader when it comes to the all-important affordability criteria. At EUR 23,300 we are the first major carmaker to offer a BEV in Europe, which is manufactured in Europe at a price below EUR 25,000.

And towards 2025, we’ll break the next price threshold with our urban variant, calibrated for lower range needs at just under EUR 20,000. The launch reception has convinced us that there will be strong demand for this product and let me add that I think these vehicles – in fact, I know, these vehicles are going to be profitable from day one at Stellantis. Earlier this month, we also presented two major building blocks to our Dare Forward 2030 plan with the announcement of our new strategic partnership with Leapmotor and the launch of our Pro One commercial vehicle strategy, each of which I’ll discuss briefly today. Another very important topic to address is the labor negotiations with our North American workers represented by the UAW in the US and by Unifor in Canada.

The combined negative impacts of our shipments from both of these strikes was around 50,000 units in September and October, with an associated net revenue impact close to EUR 3 billion. We’re very pleased to have reached a tentative agreement with both UAW and Unifor in the last several days, but that also means we’re limited in our ability to provide additional details at this time out of respect for the remaining steps as the union leadership teams are now in the process of communicating details and putting ratification decisions to their members. Let me now turn to market share, where overall performance was lower in both of our largest markets versus the year ago period. It’s important to note, however, that in Europe, our market share grew in the month of September, and that’s momentum we expect to build further in Q4.

While in North America, we continue to focus on improving our sales and marketing effectiveness and optimizing the mix. The next chart is about our Commercial Vehicles business, where we recently launched our new Pro One multi-brand plan of attack to obtain market leadership. CVs represent one-third of Stellantis revenues and we have regional leadership in Europe and South America with strong positions in the Middle East and Africa as well as in North America. We have been producing commercial vehicles for 120 years, the loyalty rates are sky-high and the profitability exceeds our already high group standard. To keep pushing forward, we presented a full renewed lineup of not just one, but 12 vans each offering BEV variants. Adding to that, we will be launching four Ram electrified vehicles in the next 24 months, starting with Ram ProMaster later this year.

Our entire CV offering will also be fully connected in terms of software by the end of this year, and we intend to double our CV net revenues by 2030 versus 2021 and generate EUR 5 billion in CV software and services. As a result, we’re now targeting the number 1 position in commercial vehicles by 2027 and that’s three years ahead of our original Dare Forward 2030 ambition. I’d now like to turn to our announcement from last Thursday about our exciting new partnership with the Chinese EV pure-player, Leapmotor. We will invest EUR 1.5 billion to acquire a 20% equity stake in Leapmotor and are setting up a Stellantis-led joint venture, which will hold the exclusive rights to export and manufacture Leapmotor products outside of China. This will help us move into an offensive position where when it comes to the strong secular trend of rising BEV exports, which are projected to more than double in terms of sales outside China by 2030.

At the same time, we’ll be participating in Leapmotor’s impressive growth story within China with being part of that elite group of tech-led local NEV pure-players that we believe will belong to the long-term winners in the world’s largest car market. Lastly, we believe this partnership will provide outstanding real-time insights for our core business based on the dynamic, highly verticalized Chinese EV ecosystem that we can use to benchmark and challenge our core Stellantis business to innovate and win in new ways. We expect to be in position pending regulatory approvals to start shipping from our new export JV, Leapmotor International in late 2024. And in 2030, we’re targeting more than 500,000 units of annual export volume on top of Leapmotor’s own goal to have at least 1 million units annually in their domestic Chinese market.

This partnership will play a key role in the Stellantis growth story, but play at no expense to profitability, where this deal will be accretive to our AOI in 2025 and enhance our margins in the longer-term. Turning now to our key financial figures for the period. Shipments increased 11% in Q3 and revenues grew 7% to EUR 45 billion, as I mentioned earlier. This continues our strong year-to-date trend. As you can see here, negative currency translation effect dampened this performance, but the underlying trends are strong. In the third quarter, we added over EUR 3 billion to the Stellantis’ top line, thanks to strong shipment growth and carefully calibrated pricing, which helped us to offset nearly EUR 3 billion of negative FX impacts. The very strong performance of our Third Engine contributed more than 50% of our revenue increase.

So now let’s briefly discuss the shipments and revenue performance by segment on our next chart. In both North America and, in large, Europe, higher shipments plus modest pricing gains drove solid net revenue growth. The Middle East and Africa was again our strongest growing segment with shipments passing the 100,000 unit mark to more than double last year’s volume as we continue to benefit from our unique leading positions in Algeria with the successful introduction of the Fiat brand and in Turkey with our powerful Peugeot, Opel and Fiat brands. Net revenues in the region grew even more with a 128% increase to reach EUR 3 billion helped by positive net pricing and also benefiting from hyperinflation in Turkey. Looking at our next chart, where in South America, shipments and revenues grew 7% and 8%, respectively, in Q3, the positive net pricing more than offset negative FX impacts, particularly from the devaluation of the Argentinian peso.

Lower shipments in China, India, Asia Pacific led to a decrease in net revenues and in line with the trends of other Western car and luxury brands in China, Maserati also experienced lower shipments against the prior period. Turning to the next chart. I’d like to comment on our new vehicle inventories, which were virtually unchanged versus Q2 levels when we last published these results. Global inventories have remained stable at around 1.4 million units. However, this hype in improvement in Europe, where our outbound logistics are continuing to improve, allowing us to reduce inventories. This improvement was offset by slightly higher inventories in North America, given that we have prepared our inventory levels for potential strike scenarios, which would have impacted production even more than what we ultimately experienced.

In terms of global inventory mix, we were able to reduce levels held by independent retailers to around 1 million units, while company-owned inventory increased 68,000 units in line with seasonal trends. Looking longer-term across 12-month intervals, you can see that we are now at a more normalized level compared to the highly supply-constrained 2020 to 2022 period and have significantly tightened our inventory levels versus our pre-merger predecessors as the decline versus 2019 shows. And finally, in this section, let me touch on our order book which has moved from four months at the end of the second quarter to around three months at the end of this period. This is right where we always want to be, because it allows us to have solid revenue visibility but we’re also improving our ability to serve customers in a reasonable timeframe.

Moving on to our outlook and guidance. The industry continued to show strong overall demand in the third quarter, leading us to raise our full year 2023 industry outlook in three of the six regions. And we exited Q3 with confidence in our continued strong revenue performance, progress on strategic objectives and short-term industry challenges. As a result, we’re confirming our financial guidance where we intend to deliver double-digit adjusted operating income margin both in Q4 and for the full year and the positive industrial free cash flows, which given the strong starting place in terms of H1’s EUR 8.7 billion, easily puts us within reach of 2022’s EUR 10.8 billion mark. Our focus between now and the end of the year will be on finalizing North American labor contracts so we can restore full production capacity.

Also, it will be about building momentum in BEVs, particularly in Europe, where we intend to maintain our top two standing. And finally, when looking at sales performance more broadly, we intend to drive further efforts in each of our key regions to improve share and do so while maintaining strong profitability. Let me close by looking forward, in addition to our full year 2023 results on February 25th, we’re excited to announce that we’ll be hosting a 2024 Investor Day on June 13th in Auburn Hills, Michigan. We will be sharing more information on the event in early 2024, but we’re looking forward to covering a wide range of important topics. So, please save the date. Now I’ll say thanks for listening and hand back over the operator so I can take your questions.

Operator: Thank you. [Operator Instructions] Thank you. And we’ll now take our first question from George Galliers of Goldman Sachs. Your line is open. Please go ahead.

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Q&A Session

George Galliers: Hi, Natalie and thanks for taking my questions. Just being respectful of what you said around not being able to disclose too much detail on the UAW negotiations. I wanted to just start by asking where the high level you could give any indication of what the anticipated headwinds will be for you from the higher labor contracts as we think about 2024? And also whether you could give any insight into the cost of the signing bonus and whether that would be accrued over the life of the contract or booked to the second half of this year? The second question I had was just with regards to the development of the revenue per unit in the Middle East and Africa. If we look at this, there seems to be a lot of volatility from Q1 with a big drop at Q2 and then another large step-up now at Q3.

Can you give us some insight into what’s driving that? Is it product mix or regional mix? And how we should think about that going forward given this is an increasingly large part of your business? Thank you.

Natalie Knight: Sure. Thanks for the questions. We start with UAW. I mean, maybe getting some things out that I also said in the press call earlier today, which is, we go into that position, I think, in a very healthy space versus the competition. On the one hand, the US market, it’s very important to us, but it’s a smaller piece of our overall business than what you see from our US competitors, and it’s a place where we start with a very high and healthy profitability level. When we look at kind of where we’ve ended the negotiations, I talked about the number of shipments and about the EUR 3 billion in terms of revenue hit that we’ve had this year. What I did say this morning on the press call was that, when we look at that from an AOI perspective or in terms of margin, that number is less than EUR 750 million.

And we also believe it’s the lowest of the big three in the market. So that’s just kind of getting to where we are today in terms of impact. When we look at what does that mean in terms of 2024 and beyond and your question about the ratification bonus. I’m not going to make any specific comments on those numbers, because I do want to respect the process, and I think our peers have also let UAW go through the process of talking with their members and our employees first. But what I will say is, you can expect those numbers to look very much in the same order of magnitude as what you’ve heard Ford comment on in terms of their numbers. In terms of the signing bonus and how it would be booked. That’s definitely something that you would see us look at this year in terms of going through our AOI.

So that’s a very standard piece in terms of the accounting treatment. When it comes to your comment about the revenue units on Middle East and Africa, this is one of those things where we have a very different mix impact depending on the different countries. We’re not selling our products at the same price in all those countries. So it really depends on the macroeconomic situation in each country. So, in our country mix as we see that change, then we also see the changes directly in the revenue. So it’s important at the end of the day, is, we’re really looking at the margins and how the margins develop you know this year that we had big changes in terms of our growth in the Turkish market, and we’ve now had strong growth in the Algerian market as we’ve come online there.

So it’s really about the mix between how those countries are playing into the overall.

George Galliers: Thank you.

Operator: Thank you. And we’ll now take our next question from Michael Jacks at Bank of America. Your line is open. Please go ahead.

Michael Jacks: Hi, good afternoon. Thanks for taking my questions. The first one, Natalie, is on industrial performance. So costs for the second half of this year and into next year, I think the initial guide for 2023 was for industrial cost to half versus the EUR 9 billion headwind from last year. But given that H1 was run rating well below that, that would imply an increase for the second half of this year. I would also expect that raw materials are becoming a tailwind and synergies are a tailwind as well. So, would it be reasonable to expect a more neutral cost impact in the second half of this year? And how should we think about the setup for industrial costs going into next year? And then just an additional question on Middle East and Africa, I mean it’s been quite an exceptional period for you on volumes. Would it be fair to assume some degree of normalization here going into next year? Thank you.

Natalie Knight: Okay. Quite a few things in there. I think the first one was just looking at how costs are moving for us as a business. And this is one where I think you’re right that there have been a lot of different moving parts in there this year. What we saw is that, we have had some tailwinds on raw materials, and that’s, I would say, accelerated a bit as we’ve moved throughout the year. On what we’ve been able to do ourselves as a business in terms of the transformation, that piece has also, I think we’ve been able to deliver some very positive benefits there. We do continue to see challenges on the cost side with our suppliers. But that is something that I think is actually moderating versus what you’ve seen over the last two years where they’ve been a real big run up in that area.

Synergies, as you called out, are also another important tailwind for us. That’s something that is developed very nicely. And this year, well, I think I’m confident we’ll pass the EUR 8 billion mark in terms of how that runs into our numbers. So, that is something that is – I think that answers that question for you. TPC is also something that’s very important for us in terms of that number moving in the right direction and everything we can control there. When it comes to the Middle East and Africa, could you repeat your question for me? It was something about volumes.

Michael Jacks: Yeah, I mean, we discussed in the previous question about price and mix, but obviously, volumes have been a significant headwind – I mean, tailwind, sorry, a massive tailwind. Should we expect some degree of moderation here next year? Or does your level of visibility suggest that this kind of volume level can be sustained for the next, say, three to six months?

Natalie Knight: Yeah. I think in terms of 2024 outlook, you can expect us to talk about that a lot more when we have the full year results. But it’s really going to depend on what’s happening in the market conditions there. I think if you look at our business in the Middle East and Africa, we have some core things that are going our way in terms of we have a very strong position in the Turkish market, and we’ve continued to build on that. We have the new entry into Algeria, which is something where we’ve got outstanding market share and really see continued opportunity. But there definitely is – these are all markets where there are higher volatilities, there are different macro things coming into play. So I’d like to be a little cautious about giving too much guidance on that until we get to our full year numbers.

Michael Jacks: Understood, thank you. And then just quickly circling back on the industrial costs. Should we expect a headwind again in the second half of this year or a more neutral impact?

Natalie Knight: No, I think you should definitely expect a more neutral impact if you’re looking at between now and the end of the year.

Michael Jacks: Thank you.

Operator: Thank you. And we’ll now take our next question from Daniel Roeska of Bernstein Research. Your line is open. Please go ahead.

Daniel Roeska: Hi, good morning, good afternoon. One question on the inventories. They’ve held largely steady as you showed in your presentation from the first half with a slight shift in the channel. May I ask about more medium-term, how would you react with regards to mid-term production volumes if inventories kept going up across your regions in the upcoming months? And then secondly, maybe a broader question, Natalie, could you give us an update on your agenda other than the obviously hot topics of the day, what do you want to be more focused on in the medium-term for Stellantis and where you’d like to leave your mark? Thanks.

Natalie Knight: Great. Thank you. Two questions there. The first one was on inventories. And I think this has been a topic – I know we’ve been getting some calls on it during the day. So maybe a little more color on that one as well, which is, if we look at the inventory levels, I think I called out in my prepared comments that we’re very pleased that in Europe, we started to see things move the right way, that we’ve had logistics improvements. You know this has been a place we’ve been working on. We’re starting to see that pay off. Conversely, that means that we still have levels in America that are higher than what we would like. And I think this is something where there is a piece that I commented on, which is, of course, because of the strike, we had been very thoughtful about how do we ensure we have the right levels to ensure that we give continuity to our customers.

There were a couple of other items that played into our inventory numbers when we look at Q3 that I do think like the strike number will abate as we go forward. The first one was really about planned downtimes that we’ve got in terms of our plant facilities. It was for the challenger and the charger at Dodge, where we’re looking at getting those to be more electrified future. And the same thing with our Chrysler Pacifica. So, that’s something that I think is very important in terms of just sort of understanding why we’re there and also why we believe we will see some inventory improvement as we go towards the end of this year. And when you look at the question of more medium-term in terms of how we think about it, well, obviously, the inventories are going to depend on our sales evolution and how that moves.

And our expectation is that we will see our sales improve. We have new models coming to market. We’ve got a lot of exciting products in terms of on the EV side in the US. And that’s a place where that’s what helps us to get our numbers where they ought to be in terms of inventory. And what we’re really doing is, we’re thinking about constantly how do we optimize the day of sales figure. It isn’t where we want it to be yet in North America. And obviously, over time, if it isn’t where it needs to be, then we’ll take corrective action. But I do believe at the moment, we’ve got a good plan in terms of the products so that the flow of cars that are coming out that we will be able to show progress there and feel confident about the development going forward.

The second question you asked was about my medium-term agenda. Thank you. I’m thinking I’ve been 100 days or so enrolled. So I still very much have that thinking cap on. And I think there are some different places where I have a huge passion in terms of how do we bring them into business. Maybe first is like any CFO, I think we’re drilled in our brains, how do you think about cost and efficiency and making sure that the business isn’t where it needs to be. And we are in an environment where things are tough and they’re challenging, and that’s something that requires a lot of attention. So, I think you know, Carlos already has an outstanding reputation there as part of this business DNA, but you can expect that’s also a place where I will spend time and energy.

The second one is that I really look at our business and making sure that people externally understand the story, the red thread, what makes us special and unique. And also how does that translate into better comparability with our US peers, better valuation for the business. I think this is really an opportunity where there’s some low-hanging fruit in terms of how we communicate, what we communicate that we help people make it easier to understand what is so great about this business and why we’re very optimistic about the future. And the third one, which is something I care very passionately about is around everything ESG. I believe we’re in an industry where we’re 25% on the global footprint when it comes to carbon and where we have a unique opportunity to be part of the solution.

This is something that I think only happens and only really scales up when not only does the whole business care about it, but also when the finance function is providing the transparency and really looking at the topics that will help drive the business forward. So, that’s definitely in place. You’ll also see my focus as we go forward.

Daniel Roeska: Excellent. And can I direct your kind of your view towards your balance sheet? I mean, if we look at what Stellantis has done over the past, let’s say, take a long time period, like five or six years, right, the balance sheet has improved quite substantially. Are you kind of satisfied with where the balance sheet sits or what are the areas you’d like to look at in the upcoming years?

Natalie Knight: Yeah. Thank you so much for asking, because I’ve got so excited about giving you those answers that I skipped the last one, which I know for many is probably very important. And that is obviously looking at how do we optimize where our business is and having an efficient balance sheet? So this is something where I think our business is known as being an outstanding operator and I think that’s something where we prove day in and day out that that’s something that really matters to us. I think we are still a pretty young company. And so, in terms of being able to go out and show shareholders, how do we move from maybe a safety-first balance sheet to an efficiency-driven balance sheet is something I think we can do better.

And when we think about how are we doing there that’s a complex topic, because one is getting, I think, stronger vision inside and outside the company on how and where we invest in the future, because this is an industry that’s going to require making sure we make those good investments. But at the same time, I think we have the ability to be braver and even more thoughtful in terms of how do we look at making sure those the strength of our very strong cash-generating machine is being put to best use, whether it’s within the company or also with more directly with shareholder remuneration.

Daniel Roeska: Great. Thanks, Natalie.

Operator: Thank you. We’ll now take our next question from José Asumendi at J.P. Morgan. Your line is open. Please go ahead.

José Asumendi: Thank you. Hi, Natalie. Two questions, please. The first one on the launch of the C3 electric price below EUR 25,000. Can you explain a little bit what are the key pillars that allows you to make money with the car and close that margin gap between ICE and BEV? I mean, this is clearly, I think one of the most important statements the company has given now in the past year. And second, with regards to best penetration in Europe and all your upcoming product launches, can you share a little bit your thoughts with regards to the best penetration ratio in Europe? And where do you see that maybe on a three, six, nine month view? Thank you so much.

Natalie Knight: Okay. Let me talk about the E-C3, because I share your view that I think this is a real milestone in the industry. And when we look at what’s happening in the EV marketplace, I think this is one where our belief is very strong that you’ve got to win when it comes to both technology and affordability and not only is it that we’ve got the E-C3, but if you look at the Peugeot 3008, that’s an example where we’ve brought out a product with 700 kilometers of range. So we are also looking at what does it take to have the best products in the market in terms of the technical prowess, all of the things that people will expect. But when I think of the E-C3, this is one that’s so important to us, because what it does is it really plays into that strength that we have as a company, which is about being able to come with products that are, I think, very approachable, affordable, accessible for consumers, and that’s part of our big focus as a company, but also doing that at low prices.

And what’s allowing us to do that is really the platform thinking that we have as an organization. This is something where we’re really looking at using those platforms across multiple energy sources, but then also being able to really use them successfully across our brands. We also, I think, are one of the industry leaders when it comes to sourcing, certainly amongst the Western brands, and that’s something where we are efficient, we can always be better, but where I think we’re doing a very strong job. And it also has to do with product definition, making sure that we really are looking at what exactly is the consumer looking for at those price points. So when we bring out the E-C3 that’s coming in the first quarter, that’s one where we’re doing a midrange vehicle.

And you’ll see us, as I said, in ‘25, coming out with a shorter range, because that’s something where we believe there’s another critical price point that we can address that is going to be very important. And I’ll take the opportunity also to lean over a little bit into Leapmotor, you didn’t ask, but I think that’s another one of the things that’s a great opportunity for us is not only are we now going to have a 15th brand that we can be using in markets outside of China to really come at that consumer who is looking for those competitive price points and wants the right technology and is excited about that kind of offering. But I’m also equally excited about the learnings we’re going to get from collaborating with one of the up and comers in that Chinese ecosystem of everything around NEV, because it is something where we then have the ability to have real-time benchmarking when we think about what does best-in-class look like.

And when we talk about our due diligence there, we did find that the price differences that you see between Chinese and Western brands, they definitely exist. There’s a lot of it is around the verticalization and how does that challenge us to think about doing that even better. But also, there are other opportunities there, I think, where it’s been an environment that’s very focused on speed and agility, and that’s something that will help us in that area as well. So, long answer to a short question, but I think one where I hope that shows we’re very motivated on this side. We know that the markets will do what the markets will do. But we believe if we’ve got the best product out and we are continually looking to how do we innovate, how do we accelerate, how do we focus on the affordability, then we have what it takes to be a winner in this space.

José Asumendi: Thank you very much. The second question was in relation to BEV penetration in Europe, whether you have a target or how do you see the progression in the coming quarters? If there is a figure or a target behind that share of BEV? Thank you.

Natalie Knight: I’m sorry. Could you just repeat? I couldn’t hear the first word or two you said something about BEVs in Europe?

José Asumendi: Yes. Well, the question relates around what is your current share of electric vehicles within your product mix in Europe? And how do you see that evolving on a six, nine month obviously, with all these product launches you’re going to have. Your market share in Europe is going to evolve positively or your share of electric vehicles within the product portfolio is going to develop also upwards? Do you have any thoughts with regards to the share of electric vehicles within the business in Europe?

Natalie Knight: Yes. I mean right now, it’s around the 16%, 17% level, and it’s definitely something that we’re launching. We’ve got 28 BEVs out in the market globally, and we’re planning to extend that market coverage and the market share when we look at next year. So I think it’s about moving into the C segment, moving into the C segment SUV. So that’s where you’ll see us play a bigger role. And I think the next threshold for us as a company is, how do we get to 20%? That’s one of the things – it gives us a little bit of time and energy to do that. But as a Group, that’s something we’re very focused on. And I think that position for us of being number 2 in the market and overtaking Tesla was sort of an important psychological hurdle for us as a business. And now it’s on to the next bigger and better things when it comes to Europe and EVs.

José Asumendi: Brilliant. Thank you so much.

Operator: Thank you. And we’ll now take our next question from Thomas Besson at Kepler. Your line is open. Please go ahead.

Thomas Besson: Thank you very much. It’s Thomas Besson from Kepler Cheuvreux. I have a few questions as well, please. I’d like first to follow-up on the latest question. Could you please give us the units for BEVs and PHEVs [specifics] [ph] in Q3 and year-to-date? And remind us what are the key launches for you in Q4 and in 2024 and confirm that Leapmotor units that are going to be made by your joint venture and sold in Europe are going to be part of your total BEV units for CO2 calculation purposes? So that’s the first question. The second question, sorry, much more basic. You show a pricing of about 3.5% in the quarter. Could you help us understand like what was the share of emerging market ForEx composition within this?

And what was the share of pricing as such? And lastly, could you talk a bit about Maserati’s ramp-up? Volumes were softer in the quarter. A lot of products have been launched. When can we expect Maserati volumes to effectively start being a bit more sizable on a quarterly basis, please? Thank you.

Natalie Knight: Okay. Thanks for that multipronged question. I heard three, but I think there were four or five in there. Let me try. I will start and I may do this in a little bit of a mixed order. When we start with – the first one is you wanted to know about BEV, I think it was units in terms of – was it just Europe or globally with that?

Thomas Besson: It was BEV and PHEVs globally, please, for the quarter and year-to-date.

Natalie Knight: Okay. I think that’s something – let me get back to you on that in just a second. You also asked about what was going on in terms of the launches that are coming. And that one, very excited to say that if we look at Europe, we’ve got coming still this year, the Fiat 600e. And then as you go into ‘24, our Topolino is coming at Fiat in terms of January and February, we’ll have the 3008 CV that I was talking about earlier. The 5008 SUV is coming in August and the 408 will be coming in the fourth quarter. When we look at the US market, you didn’t ask, but I’ll just throw it in, because I’m very proud of the electric lineup we have coming there as well. There, you see the Ram ProMaster that we’ve been talking about quite a bit ramping up at the end of this year.

And then as we look into next year, you’ll see both the Wagoneer S SUV coming and the Charger Daytona EV, they’re both around mid-year and end of the year, you’ll see the Recon SUV and the Ram REV or the 1500 as we lovingly call it. When you talk about the numbers in terms of what do we see in the third quarter, on the PHEV side, it’s about 75,000 units. On the BEV side, it’s 93,000 units. And when we look at the numbers of that year-to-date it’s – we’re approaching a number that’s close to 200,000.

Thomas Besson: Thank you. And I was asking as well that –

Natalie Knight: Let me – I’ll keep going. On your other questions, I’m sorry, you had the next one was on pricing. I had written down, you were asking about the 3.5% and how much was emerging markets? And I think what we were trying to get at probably in a nice, polite way was, how are we doing in the mature markets? And what you would definitely see there is that, our net pricing numbers have moved versus a year ago very nicely. We’ve had the emerging markets, as you’re right, are definitely the pieces that have led the way, but we have also had positive pricing increases in both North America and in Europe. Europe, it’s pretty small, I’ll admit. But in terms of the US number, we’ve seen it at above – almost 2.5%.

So that’s something that is moving really positively for us. I think you also asked about the Maserati ramp-up in terms of how that piece is going? And that’s something where we’re currently in the process of really growing those new products in the market. We’ve had good reception, I would say, to our new products in line with our expectations for this year, with the exception of what you saw in China. I do want to come back real quick to the numbers in terms of year-to-date, because I’m sorry I misspoke on that. The PHEV number alone is 221,000, and the BEV number is 262,000. So, I hope I got through all of them. Did you want to ask any follow-ups to any of those questions?

Thomas Besson: Yeah. I just had one with LEVs. On Leapmotor, I just wanted you to confirm that the number of units that will be sold by your joint venture in 2025 will count as part of Stellantis’ BEVs?

Natalie Knight: Yes.

Thomas Besson: Yeah, perfect. Thank you very much –

Natalie Knight: They’ll be fully consolidated in our results. What you’ll see just in terms of the accounting more generally is that, everything that’s coming through the JV because it’s – we have the 51% will come in the AOI line, and we will, of course, take the minority piece out below. And in terms of the proceeds that we have from Leapmotor overall will come in, in that line as well below, but also contribute to our EPS.

Thomas Besson: Clear. Thank you very much.

Natalie Knight: Super.

Operator: Thank you. We’ll now take our next question from Dorothee Cresswell at BNP Paribas Exane. Your line is open. Please go ahead.

Dorothee Cresswell: [technical difficulty] question. I have two left, and they’re both in relation to the international joint venture that you’ve agreed with Leapmotor. So first, can I ask for how long the joint venture actually has complete exclusivity to distribute the Leapmotor products outside of China? And then I also wanted to understand how far you can use the Leapmotor 3.0 platform to make vehicles for the other Stellantis Group brands? Thank you.

Natalie Knight: Great. Thank you for that question, Dorothee. In terms of the exclusivity with the JV, we haven’t released that number, but it is long-term in nature. So quite long-term in nature is what I would say. In terms of the – utilizing their platforms, that is not part of the current arrangement. It’s really focused on how do we help Leapmotor in terms of their business in China and exporting the products outside of China. One of the things, you’re right, though, that we’re very excited about are what are the opportunities for other cooperation going forward. So you’ve mentioned one example in terms of what could you do in terms of a technology or product point of view, one could also think about are there things on the purchasing side.

We’ve seen those type of arrangements in the industry. So this is definitely a place where we are going to let our creativity flow. This is an outstanding partner for us, where we think we have a lot to offer them, but also a lot to learn. And I think you’ll hear about it over time that we will become more ambitious in terms of what we want to do in our collaboration with Leapmotor going forward.

Dorothee Cresswell: Very helpful. Thank you.

Operator: And we’ll now take our next question from Henning Cosman of Barclays. Your line is open. Please go ahead.

Henning Cosman: Yeah. Hi, Natalie. Thanks it’s Henning speaking. There were a few comments made on profitability in the second half. And if you allow me, I just wanted to perhaps consolidate that and ask your opinion. So, I think in your intro remarks, you said H2 also double-digit. I think in the press release, you were quoted as saying you’re focused on maintaining momentum and delivering industry-leading profitability. I think you also quote on saying that you will continue to cut cost to make up for the strike hit. So perhaps specifically on the industry-leading profitability, Mercedes at 12.5% in Q3, the company consensus that you had collected was at 11%. So let me ask you straight up. Would you agree that, that seems a little bit low in the context of what you’re thinking when we’re consolidating all the statements that have been transpiring today? That’s my first question.

Natalie Knight: Okay. On that question, I think the answer is the sum of the parts that you’re bringing are correct. So when we look at – this is something where we are very proud of this pull position we have in the industry of the highest margin in terms of AOI and the strongest cash flows. And that is something we are very focused on how do we stay in that top tier with our competitors, because that’s what we believe shows the world that we are going to be one of the winners in this market long-term, and we know the steps and the smart ways to make that happen. So, that is something that is very important to us in terms of how we move forward. You’re also right, that we are very strongly of the opinion that when it comes to looking at everything in terms of things that are unexpected and the strike and the length of it was unexpected, is, how do we find ways to mitigate those expenses.

Now obviously, the impact in 2023 is a significant one, and I don’t want to suggest you’ll see that fully mitigated in ‘23. But I think you will see big moves on our side. This is something that we care about and this part of our DNA. This is something we think shows how seriously we take the ability to bring affordable cars, especially as we move into a new EV generation to market. So to your point about the 11% margin. And is that something that might be conservative when we look at it for the full year? The answer is definitely yes. We’re not giving new guidance today. We’re confirming the guidance that we have out there. But I think when you look at the pieces and you look at our performance year-to-date, you look at what you’ve seen in terms of the sales and shipment trends, I think you can continue to be very confident in our ability to deliver as a Group.

Henning Cosman: Thank you. And maybe I can ask specifically about pricing and mix again as well, specifically for Europe and North America; both were obviously positive again in the third quarter, mix hadn’t been positive at the half year point. Could you go into a little bit what you’re seeing today? How is pricing? How is mix developing in the fourth quarter, October over now already, where the directional ingredients of Q3, are they sustainable as we go into the fourth quarter? Thank you.

Natalie Knight: So, I think what we see in the marketplace is that, it does seem things are toughening up there a bit. And it’s also an environment where we know that versus the last year, you have seen prices instead of – we had big gains in ‘22. And a lot of our efforts have been about how do we hold on to those prices. And I think we’ve done that in a smart way, and it’s something we’re proud of the performance, and we’ve chosen at times to make market share trade-offs that were required to be able to continue to deliver that strong pricing. When we look at the fourth quarter, I think what you see is continued development in terms of what’s happening. I think our growth will really be driven by volumes, pricing, we think, will be largely stable.

I think we feel confident that we’re going to be able to control incentives at a good healthy level, which is going to kind of be key. And one of the reasons we believe we can protect our profitability. So we do always have to be thinking about things like the mix is increasing in LEVs. And for the moment, even though those are profitable for us, they have a lower impact in terms of our overall profitability number versus ICE. So, there are some mixed things that we’re going to have to offset. But I think when we look at those four pieces, you can see volume being the real driver, price continuing to be a plus and mix having some positives and negatives in it.

Henning Cosman: Thank you, Natalie. That’s correct. Sorry just as you were talking, I’m getting just quite a few clearing questions if we could please clarify. So my question was around consensus level in the second half, which I’ve calculated as 11% from what you had said around. I believe in your answer, you said full year. So, can we just clarify that we’re talking about the H2 level at 11% being low, that’s what you meant, right?

Natalie Knight: My comment was about the full year. So it was, as said, on purpose because we do only give guidance on a full year basis. But again, if we want to have a number above 11% and if you look at the dynamics of our business, I think you can expect that we will continue to have quite positive trends in the second half.

Henning Cosman: Thank you so much.

Operator: Thank you. We’ll now take our next question from Patrick Hummel at UBS. Your line is open. Please go ahead.

Patrick Hummel: Yeah, hi. Good afternoon, Natalie. Two questions. My first one is on your EV investment plan. It seems like you’re pressing ahead as planned with the launches with your investment spending. Am I right with that conclusion? I’m asking, of course, against the backdrop of slowing EV demand in the Western markets and the responses of your Detroit competitors to push back some EV launches or also delay sizable amounts of EV-related CapEx?

Natalie Knight: Yes. So in terms of our EV investment plan, when we look at the next period, one of the things that we talked about with our Leapmotor announcement was that, we have actually increased our guidance on what that investment is going to be. We now are expecting to spend EUR 50 billion between now and 2030 in that spot. And our focus is obviously on making sure that we have a flexible powertrain strategy so that we are able to, on the one hand, capitalize on whatever is happening in the marketplace. I think that’s something that we probably came into over time because it was something where we were strong on the ICE side of things, and we moved in a little later into the BEV side of things. But it’s something that today is really important for us, because we are growing very quickly in those Third Engine markets.

And so that means, we’re always going to need to be able to have those kind of products that are new, competitive and affordable. But at the same time, we want to be able to have the best BEVs out there. So, the strategy is the one that I really like because it puts us in a place to, on the one hand, be able to invest heavily in those technologies that are going to drive the future, but also give us a little bit of a safe bet if we see opportunities coming in the ICE segment that we don’t want to miss.

Patrick Hummel: But more precisely for the next year or two, there are no shifts in investments to later years. Is that right?

Natalie Knight: There are no shifts in investments to later years. No. This is one of our biggest priorities. And when we look at this, this is something where, yes, you can definitely continue to expect us to be going full speed ahead.

Patrick Hummel: And my second question then would be just in terms of coming back to the balance sheet and what the cash is earmarked for. Your predecessor had earmarked a few billion euros that are required to build a FinCo. And he also set aside some funds for funding the negative working capital to get to a bit more of a normalized working capital situation. Now that you’re 100 days in the job, would you see the need for those kind of cash outflows in the coming years? Or is there an update to your thinking as it comes to the growth of a captive FinCo business in light of the quite challenging environment?

Natalie Knight: I think that’s one where I would like to take the opportunity to answer that with our full year guidance, because one of the things that we want to do is actually start to, I think, increase our communication in terms of how we look at the balance sheet more holistically. I think what’s absolutely fair from Richard and in terms of how the whole company has operated is, on the one hand, I think we do want to look at having a working capital number that is, I’ll say, more competitive and in line with how the industry is measuring it. So that’s when you’ll continue to see us focused on. In terms of specific items, whether it’s the FinCo or something else, those are things that we’re always going to have strategic priorities that require investment.

But at the same time, it’s critical to us that we are looking at how do we use that efficiently. And I think what you would expect to see from us is a very holistic conversation about what are the strategic things that help us become a leader in the BEV space that help us continue to lead when it comes to affordability and all the drivers that help us in accretive businesses that do that. But also at the same time, making sure, I think, as we’re entering an environment where the macro environment is tougher, where cash isn’t free, where we need to be thinking about what’s the best use of the cash we have and do we really get the returns we want for those investments. So –

Patrick Hummel: Thank you, Natalie.

Natalie Knight: So, that will be my answer to that question.

Patrick Hummel: Thank you.

Operator: Thank you. And we’ll now take our last question from Tim Rokossa at Deutsche Bank.

Tim Rokossa: Yeah. Thank you very much, Natalie. I have three questions, please. The first one is, obviously, you have a super interesting and extensive experience across several industries. I’m certain you had a lot of views going into this job and pan due diligence. What surprised you the most to the downside versus your expectations with all the negativity that especially investors put into the space? Secondly, just to clarify this, you already said you want to be an efficient cash flow machine. I think we all appreciate this. Will a buyback program be a crucial component of your return strategy over the next few years once this one is done? And finally, you guys always lobbied for a level playing ground and fair rules. Has the Leapmotor cooperation or anything else that happened, changed your view on this potential tariffs that may come from Chinese imports into the EU US pro or con? Thank you.

Natalie Knight: Okay. I think I am going to do those backwards, which is, starting with the topic around Leapmotor in Europe and the level playing field. I think one of the things that we have said pretty consistently as a Group, is that, if we want to win in the EV space over time, we have to be willing and prepared to compete versus the best competitors in the world. And so, when we look at what’s happening in Europe, our view is, you are going to see the Chinese position grow in this market in some way, shape or form. And that’s a question of, is it being on the defensive and looking at how that comes at you or in our case, it’s being much more on the offensive and collaborating and seeing how we can make sure that we really address that issue in a thoughtful way.

I would like to emphasize on this one that in addition to the rights to export, the product from Leapmotor, we also have in the JV, the ability to manufacture the product. So it is something that if we were to start to see there were issues around import duties or where things are made, that’s obviously still an option for us in terms of the strategic thinking we had with that deal. The second question you had was around being a cash flow machine. I like that a lot and that’s something that matters to us as a Group. I think that’s one of the ways we prove our value as a business is that, we’re continually not just investing in the future, but we’re proving what we can do on a daily basis. In terms of a buyback, too early for me to give you guidance in terms of what we want to do next year, we need to finish this buyback first.

But I think in terms of how do we make sure that everyone really is able to benefit from our thinking and how we move forward. I’ve heard your comment. Thanks for the input. Don’t be surprised, a few other investors have given me that as well. So, thank you. And then the third question or your first one was actually, I think, around what were some of – was it surprises about the company or about specific deal surprises about the company is what I’m getting head not on. In terms of – since I’ve joined and what are things that are to the negative. And I guess what I’d say is, from the company itself, I have been, I would say, only positively surprised. It’s an outstanding leadership team. I’m absolutely convinced that we are doing all the right things to play into the future of where this industry is going and the executional muscle of this Group impresses me every day.

When I talk about what are the downsides, I think the two downsides I see are, the macro environment is very challenging out there these days. When you look at whether it’s wars that we’re seeing in some of the regions that we’re in or looking at what’s happening in terms of interest rates, there are challenges and in terms of what that can potentially mean for consumer behavior or at least in terms of the expectations bubble that I think people have as you look ahead at some of those topics. I think that’s the one that I really see. And then obviously, the other one is, I’ve never worked in an industry where, to me, the investment case was so clear from the story, but the ability to have that translate into people seeing it is something that has surprised me a little bit.

And I think that’s just one where we’re going to work at it every day together. We’re going to look at how we make that more transparent, and I think that’s part of my job here. And that’s something that is going to be, I think, has the potential to be a real positive over time as we help people better understand the Stellantis really are our strengths and our strategy going forward.

Tim Rokossa: Thank you very much, Natalie.

Operator: Thank you. That’s all the time we have for Q&A. I will now hand it back to Natalie for closing remarks. Thank you.

Natalie Knight: All right. Well, thank you very much. It was exciting to spend this hour with you being able to explain to you a little bit about where we are in terms of the business. I think for me, the big call out as we’re kind of closing this out are that we do have a focus on what does it take to be a leader in the industry when it comes to profitability, to cash flows, maintaining our momentum and we know there are short-term challenges out there for us. But we believe if we focus on where the future is going, which is electrification and the technology transformation, then we will be in a place to be one of the winners in the market in both the short and long-term. So thanks from my side and talk to you again next quarter.

Operator: Thank you. Ladies and gentlemen, this concludes today’s call. Thank you for your participation. Stay safe. You may now disconnect.