Why Stellantis stock fell to a 2-year low this week

Stellar‘ (STLA 1.87%) the latest warning stunned investors. The maker of Chrysler, Fiat, Jeep, Peugeot, Ram Trucks and others cut its 2024 guidance this week, with CEO Carlos Tavares even hinting at a potential dividend cut next year.

Shares in Stellantis fell after the developments and traded down 17% for the week to midday Friday, according to data from S&P Global Market Intelligence. The auto stock is now trading at prices last seen in 2022.

Problems galore

The entire auto industry is facing a slowdown in demand, highlighted by warnings issued by several automakers in recent weeks. However, Europe-based Stellantis is also facing several operational challenges, including high inventories and launch delays, which have hurt revenue, particularly from its biggest profit center, the Americas north. The headwinds forced Stellantis to significantly cut its 2024 guidance on September 30.

Stellantis expects to deliver at least 200,000 fewer units in North America in the second half of 2024 compared to the corresponding period in 2023. By the end of July, the auto giant expected deliveries to drop by about 100,000 units .

The steep drop in shipments and high costs will hurt the company’s margins, with Stellantis now guiding for an adjusted operating margin of just 5.5% to 7% for 2024 versus a previous double-digit margin forecast. Worse still, Stellantis earlier guided for positive free cash flow (FCF) but now expects to generate negative FCF between 5 and 10 billion euros.

While those numbers are bleak to say the least, Tavares’ comments on the dividend appear to have rattled Stellantis stock the most this week.

What’s next for Stellantis stock?

During a factory visit that coincides with the downgrading of Stellantis’ financial guidance, Tavares said that while the company has committed to paying a dividend in 2024, it will confirm a dividend for 2025 next year based on how it does operationally in 2024.

The huge reduction in FCF, of course, is the biggest red flag, and it’s now very likely that Stellantis will cut its dividend in 2025. Stellantis shares are down 51% year-to-date, and the dividend yield has risen to 12.7. %. Unfortunately, this is the kind of dividend stock you’ll want to avoid right now, as it could get a lot more painful before the stock bottoms out.