Stellantis (STLA.US) shares and bonds both hit record lows, with Wednesday's earnings report becoming a battle to defend the CEO's credibility.

Stellantis (STLA.US) will have an opportunity this week to reassure investors amid a sustained slump in both its shares and bonds. The Jeep and Peugeot automaker is about to report earnings, and the market is deeply skeptical of its turnaround plan. The company's share price has fallen more than 60% year to date, hitting a record low; Stellantis bonds have also fallen to historic lows. The CEO must deliver a strong reassuring signal when reporting results on Wednesday to stabilize market confidence. Investors' confidence in Chief Executive Antonio Filosa's strategy to revive the troubled group has been eroded by persistent Chinese competition, weak European pricing and high raw material costs, leaving investors with more questions than answers. "The market is now firmly treating Stellantis as a 'show me' story," said Fabio Caldato, a portfolio manager at Acomea Sgr, which holds the company's shares. "Limited visibility, combined with the challenges facing the entire industry, makes it hard to believe the company's guidance and the 2030 plan announced in May." As for the results themselves, analysts are far from optimistic. The average estimate of 12 analysts compiled by the market shows third-quarter net revenue is expected to fall to EUR36.4 billion ($41 billion) from EUR37.2 billion in the same period a year earlier. But what worries many more is an expected negative free cash flow of EUR3.4 billion. "Given weak production, the scale of cash burn is an unknown risk," HSBC HOLDINGS analyst Michael Tyndall wrote in an October 23 report. Tyndall said he is worried about "potential destocking demand in the US, and the cash outflows needed to restore meaningful competitiveness." He rates the stock "underweight" with a target price of EUR3.30, the lowest among all analysts tracked by the market, implying about 10% further downside from current levels. Other analysts are similarly skeptical. Barclays analyst Henning Cosman considers Stellantis the most difficult execution story in the European auto industry. In a report this month, Cosman wrote that he expects evidence of sustainable improvement in the investment case "at the earliest" in the fourth quarter, and believes some of the basic assumptions in the company's mid-term plan are "relatively difficult to reconcile." That skepticism has not been lost on short sellers. Data from S&P Global, Inc. market intelligence shows that as of Thursday, Stellantis shares out on loan a measure of short interest accounted for about 19% of its free float, the highest level in more than a decade. Not everyone is so bearish. Christoph Laskawi of Deutsche Bank Aktiengesellschaft said he expects a weak quarter but does not believe Stellantis will change its full-year outlook, and that overall guidance remains achievable. For some credit investors, the selloff has gone too far. The company's hybrid bonds a form of debt that is more costly, ranks lower in the company's borrowing structure and is treated as 50% equity by credit rating agencies now yield more than 11% to the first call date, compared with 6.875% when issued earlier this year. "While restoring positive free cash flow is undoubtedly challenging, we believe Stellantis' balance sheet should not be priced for a full-blown financial crisis, which current bond prices are implying," said Acomea's Caldato. He recently bought some of the perpetual notes. Still, even the most optimistic acknowledge that caution is warranted. "For the share price to recover, investors need to see evidence that the path back to positive free cash flow is real and reachable," Caldato said.