Net loss narrows by 90%, North American business turns profitable, yet Stellantis (STLA.US) still struggles to shake off cash flow pressure.

Stellantis (STLA.US) released its third-quarter results on October 28: net revenue of EUR37.611 billion, up 1% year-on-year, above market expectations of approximately EUR36.4 billion; net loss of EUR453 million, narrowing by 90% from a loss of EUR4.532 billion in the same period last year; adjusted operating profit of EUR256 million (US$285 million), slightly above the market consensus, up 184% year-on-year, with a margin of 0.7%. The company maintained its full-year guidance unchanged and reiterated its target of turning industrial free cash flow positive in 2027. The troubled automaker is working to cut costs, improve quality and launch new models to cope with increasingly fierce competition, especially in Europe. Its shares had previously fallen more than 60% year-to-date, with both its stock and bonds hitting record lows, making these results a trust-defense battle for CEO Filosa. Chief Executive Officer Antonio Filosa said his plan to step up cost savings and better execute the product lineup renewal is proceeding as planned. By region, revenue in Greater Europe and South America both grew 3%; North America fell 3% due to planned production halts; Middle East and Africa, and Asia-Pacific fell 19% and 7%, respectively. At the operating level, North American market share rose to 7.5%, and Ram brand sales grew 30% year-on-year. Driven by LEAPMOTOR, EU30 battery-electric passenger car sales increased 93%, and Leapmotor sales grew nearly fourfold year-on-year. The European business remains an urgent challenge for Filosa. Mass-market brands such as Peugeot and Opel are facing fierce competition from BYD Company Limited, Volkswagen and Renault. The region recorded an adjusted operating loss of EUR311 million, mainly due to price declines and buyers shifting to electric vehicles with lower returns. The North American business turned profitable, posting a profit of EUR64 million, thanks to the launch of new models such as the Jeep Cherokee hybrid and the Ram 1500 Hemi. However, shipments in the quarter were still dragged down by planned production halts. The company maintained its forecast of achieving positive cash flow next year, while reiterating full-year guidance of a low-single-digit adjusted operating margin. However, industrial free cash flow in the quarter was negative EUR4.009 billion, an improvement of about EUR300 million year-on-year but worse than market expectations of negative EUR3.4 billion, highlighting the gap between profit recovery and cash generation in the turnaround process. The company said its value-creation plan is expected to deliver at least 40% of the EUR6 billion run-rate efficiency target by the end of the year, and cost savings in the fourth quarter will be about twice those in the third quarter; it also flagged new pressure from memory chips and recall costs. As of the end of the quarter, industrial available liquidity was EUR42.7 billion, still within the target range. Ahead of Wednesday's earnings release, HSBC analysts including Michael Tyndall said high unsold inventory at U.S. dealers remains a concern. Earlier this year, the company announced a record asset writedown and adjusted its electric vehicle strategy, while planning to address persistent quality issues. Filosa combined these measures with plans to invest about EUR60 billion in dozens of new models through 2030, prioritizing the Jeep, Ram, Peugeot and Fiat brands. The company is also betting on partnerships with Zhejiang Leapmotor Technology and Dongfeng Motor to help fill some underutilized plants in Europe. The five-year strategic plan has struggled to gain market recognition, and the company's shares have fallen more than 60% this year, making it the worst performer in Europe's Stoxx 600 index. This month, Stellantis suspended operations at four of its five vehicle assembly plants in France to manage dealer inventory and cope with a shortage of long-range electric vehicle batteries. Several other plants in Europe also halted production this month as the group faces a shortage of auto parts and lower-than-expected demand for models such as the hybrid Fiat 500. Stellantis said it will unveil a new plan for its Deluxe Corporation brand Maserati in Modena, Italy, on December 10.