UBS Downgrades Stellantis to Neutral, Citing Stalled U.S. Recovery

UBS downgraded automaker Stellantis (STLAM) to Neutral from Buy on Monday, citing a lack of progress in the company's U.S. market recovery. Analysts noted that the turnaround thesis has failed to materialize as expected, even within a favorable sector environment.

Turnaround Falters on Key Metrics

In a note to clients, UBS analyst Patrick Hummel highlighted that the company has shown "too little progress on US turnaround." The firm pointed to several concerning trends that prompted the ratings change:

• Low Profit Conversion: The profit generated from higher sales volumes has been "surprisingly low."
• Elevated Inventory: High stock levels at dealerships are expected to force either production cuts or an increase in costly incentives in the second half of the year.
• Weak Product Uptake: Customer demand for new vehicle models has not met the company's previous guidance.

UBS also noted that Stellantis faces growing competitive pressures in its Enlarged Europe and "Third Engine" regions, further complicating its path toward achieving its "very ambitious 2028 business plan targets."

Forecasts and Price Target Slashed

Ad

Reflecting these challenges, UBS significantly cut its financial projections for Stellantis. The firm lowered its adjusted operating income forecasts by 12% to 18% for the coming years. The revisions were attributed to lower North American profitability, anticipated third-quarter production cuts, higher incentives, and headwinds from raw material costs.

As a result of the revised outlook, UBS slashed its price target on Stellantis stock to €5.8 from a previous target of €9.5. The new target would value Stellantis at 6 times its projected 2027 earnings, compared to Ford and General Motors at 7 times and European mass-market peers at 4 times, according to the note.

A Cautious Stance

While the downgrade is significant, UBS stopped short of a more severe "Sell" rating. The firm acknowledged that North America remains the auto industry's "fundamentally strongest region in terms of competitive and regulatory dynamics."

Analysts added that Stellantis shares could see a positive response if management successfully improves profit conversion on sales volumes and regains market share without a significant negative impact on pricing.