Why Stellantis stock is crashing today

In light of lingering economic challenges, it’s not a complete surprise, but seeing it in writing still surprised investors. Automaker Actions Stellar (STLA -13.48%) are deep in the red on Monday, down 12.9% mid-session after the company cut its operating margin and cash flow guidance for the current fiscal year.

The company’s announcement echoes similar warnings recently issued by rival European automakers Volkswagen (VWAP.Y 0.52%) and Mercedes-Benz (MBGY.Y -1.77%).

Stellantis hits the brakes on profit

In response to “lower-than-expected sales performance in the second half of the year in most regions” (and “performance issues in North America” ​​in particular), Italian company Stellantis says its operating margin rates for the fiscal year 2024 should reach between 5.5% and 7. %. This is down from previous indications of a “double-digit” profit margin.

Cash flow is also expected to suffer. Stellantis adds that its previous 2024 outlook for “positive” free cash flow has been updated to negative free cash flow between 5 billion and 10 billion euros.

And he is not alone. Germany’s Volkswagen issued a similar warning on Friday due to a “challenging market environment” marked by persistent inflation, still high interest rates and perhaps even a looming recession. A week earlier, Mercedes-Benz reported that its full-year profit margins should only be in the range of 7.5% to 8.5%, down from previous guidance of 10% to 11% . Like Volkswagen and Stellantis, Mercedes notes that weakened demand and increased competition are the main causes of its lowered expectations; China is a particular sore point.

And the data confirms that automakers are indeed on the defensive. Domestic and international sales of new vehicles have fallen since the middle of last year.

Not now, if ever

While the full magnitude of this is troubling for forward-thinking investors, today’s drop in Stellantis shares to a new 52-week low is also a tempting entry point.

Don’t take the bait, though.

While automaker brands such as Dodge, Jeep, Fiat and Chrysler are certainly among the most marketed in the industry, the industry itself faces bigger challenges than it can simply shrug off. Even in a stronger economic environment, the auto business may no longer be a growing business, but a static one, as alternatives to outright vehicle ownership — such as ride-hailing — become increasingly accessible. At the very least, you’ll want to wait until companies like Stellantis start reporting real revenue and profit growth before jumping in.