On Sunday, Stellantis (STLA 0.38%) announced that it had parted ways with CEO Carlos Tavares, who had led the company since it was formed in 2021 through the merger of Fiat Chrysler Automobiles and French automaker PSA Peugeot.
Tavares sold the merger with promises that under his leadership, the combined company could generate double-digit-percentage operating margins year after year by cutting costs without cutting too many jobs.
For a while, it worked. But it hasn't been working lately, and it appears that the board of directors lost patience.
What Stellantis said about Tavares's departure
In a statement, Stellantis said that its board of directors "accepted Carlos Tavares' resignation," and that it expects to hire a new permanent CEO in the first half of 2025.
Tavares and the board had disagreed over how to address weakening sales and a slump in the company's stock price, though the details of the disagreement aren't yet clear.
As of early afternoon Monday, the company's shares were down by about 47% year to date.
Tavares had previously planned to retire in 2026.
Until a new CEO is hired, the company will be led by an interim executive committee chaired by John Elkann. Elkann, the great-great-grandson of Fiat founder Giovanni Agnelli, is Stellantis's chairman and the CEO of the automaker's largest shareholder, the Agnelli family investment vehicle Exor NV.
The Jeep Grand Wagoneer is a nice SUV. But with a starting price of more than $90,000, it has been a tough sell. Image source: Stellantis.
Higher prices and more shipments worked -- until they didn't
As recently as a year ago, Tavares still looked like a genius. In 2023, Stellantis reported a record profit of 18.6 billion euros (about $19.7 billion), with an adjusted operating margin of 12.8% -- ahead of Tavares's 2030 goal of 12%.
But those profits and margins came with a big caveat: The company's inventories were swollen. Stellantis had almost 1.5 million vehicles in its U.S. inventory at the end of 2023, about 50% more than it had a year earlier.
Why so many? Stellantis, like most automakers, books revenue when vehicles are shipped to dealers. From the company's point of view, those vehicles were "sold," and those sales were counted in its year-end results -- even as they sat on dealer lots.
But why weren't they selling to customers? Simply put, Tavares had demanded higher retail prices to support his margin goals, but those prices were turning away too many customers. Dealers were struggling to move the metal they had in stock even as more vehicles continued to arrive on their lots.
Unwinding that inventory backlog-- with margin-crushing discounts -- has been the story of 2024 for Stellantis.
The company warned in September that its adjusted operating margin for 2024 would be 7% at best, down from earlier guidance for over 10%, as it works to get its U.S. inventory down to just 330,000 vehicles by year's end. Baked into that was a plan to reduce vehicle shipments by more than 200,000 in the second half of 2024, and to offer even higher incentives on the 2024 -- and 2023 -- vehicles still on dealer lots.
How should Stellantis proceed once its huge inventory sell-down is accomplished? Apparently, the board and Tavares had different answers to that question, and that's why Tavares is no longer CEO.
The stock is looking cheap now. Is it a buy?
Here is my carefully thought-out opinion: I wouldn't touch Stellantis's stock. Not yet.
Right now, it's a company with too many brands, too much inventory, too many discounts, and probably too many factories -- and no superstar CEO to help offset those concerns.
Before I would even consider investing, I would have to hear the company's plan for getting itself back on a sustainable path. It seems likely that any plan will require painful cuts, and such cuts may hurt Stellantis stock further in the near term. Chief Financial Officer Doug Ostermann will speak at a Goldman Sachs event on Wednesday. I'm hoping he'll tell us how the board of directors plans to fix this mess.
