Stellantis N.V. 2026 Q3 Earnings Call

Thank you. Hello, everyone, and thank you for joining us today as we review the Stellantis Q3 2026 results. Earlier today, the presentation material for this call, along with a related press release, were posted under the investor section of the Stellantis group website. Today, our call is hosted by Antonio Filosa, Chief Executive Officer, and João Laranjo, Chief Financial Officer. After their prepared remarks, Antonio and João will be available to answer your questions. Before we begin, I want to point out that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on page 2 of today's presentation. As is customary, the call will be governed by that language. Now I will hand the call over to Antonio Filosa, Chief Executive Officer of Stellantis.

Thank you, Charlie. Thank you all for joining us today as we discuss our quarter 3 results. As we anticipated in our second quarter call, several factors have weighed in our third quarter performance, such as lower volumes due to the planned summer shutdowns, particularly in North America, and raw material inflation. That said, we are beginning to see early benefits as we execute our FaSTLAne 2030 strategy. For example, we are heavily focused on implementing our Value Creation Program, or VCP, with many initiatives being implemented ahead of schedule. The strategy is delivering, and despite the headwinds, we improved across all our financial metrics year-over-year. Net revenues are up 1% despite volume being down 1%. AOI margin is up 50 basis points, and it is positive in all regions except Europe, where the pricing environment remains challenging.

Industrial free cash flow, which is negative in quarter 3 due to the seasonality of our business, is up EUR 300 million compared to last year. Importantly, our industrial execution also continues to improve. Overall production efficiency was up year-over-year, with North America improving by more than 10 percentage points. Three months in services quality improved significantly year-over-year by 43% in North America and 13% in Europe. We continue to expand market coverage by introducing new products, which is a key pillar of our FaSTLAne strategy. In the third quarter, we launched the Jeep Recon BEV and the Peugeot E-208 GTi, and we look forward to launching seven more products in the coming months on time, with the right cost, and with the right quality. At the same time, we are making great progress with VCP.

Based on what we have implemented already, I am confident that we will exceed our plan to implement 40% of the initiatives comprising the €6 billion target by the end of this year. VCP already contributed to our results in Q3, and it will provide even more of a tailwind in Q4. With this, I can say we are on track to realize more than EUR 2.4 billion in 2027, plus the partial benefits of all the initiatives we will implement in 2027. In addition to this progress in market coverage and VCP, we are also accelerating our work with strategic partners, which is a key pillar of our FaSTLAne plan. These partnerships are reducing fixed costs by absorbing excess of capacity, while at the same time allowing us to be more efficient in capital spending. We look forward to sharing more in the coming months.

With this, and despite the market challenges you are all aware of, I am pleased to again reaffirm our guidance for 2026, including that we expect to be free cash flow positive in 2027. Now let me touch on some Q3 regional highlights. In North America, Stellantis is among the fastest-growing OEMs year to date, once again gaining share year over year. Ram has led the way as the fastest-growing brand in the region, both in the quarter and year to date. In the U.S. alone, the Ram 1500 light-duty pickup grew 73% year over year. Next, Ram will launch the Ram Rebel Sport Truck, which is already generating strong customer demand. Its initial allocation sold out within 24 hours of orders opening. We have also now launched the Jeep Recon BEV, the first and only BEV to be trail-rated.

Soon, we will be the first to market with two new products where no one else is competing today. The Ram ProMaster City will be the only midsize commercial van available in the U.S. And the Jeep Grand Wagoneer REEV will be the first and only large SUV to offer range-extended hybrid technology. Turning to Europe, the region remains challenging with ongoing Chinese competition and a difficult pricing environment. Despite this, we continued to grow in the region with strong demand for the Smart Car platform nameplates and surging demand for BEVs, particularly in France, Germany, and the U.K. Our EU30 passenger car BEV sales grew 65% year over year, or 93%, including Leapmotor. Shifting to Pro One, we remain the market leader in light commercial vehicles with almost 27% market share.

In November, we will expand our light commercial vehicle lineup with the introduction of the Pro One Smart Car compact van. In parallel, Leapmotor continues to grow rapidly, with volumes up fourfold year over year, demonstrating our FaSTLAne partnership strategy in action. Production of the C-segment cars, starting with the B10, have begun at our Zaragoza plant in Spain, with the B05 planned to follow in the first half of 2027. Bringing these vehicles into our manufacturing footprint helps improve capacity utilization and absorption of fixed cost. Finally, it is important to note that strengthening our competitiveness will also require the right conditions in Europe. Despite the strong growth in BEV demand, timely action on CO2 flexibility and Made in Europe framework are essential to creating a level playing field. Turning to South America. In a challenging market, sales declined 2% year over year when you include the Leapmotor.

That said, we maintain our clear overall leadership position with almost 19% market share, including Leapmotor. Importantly, we also remain number one in the region's two major markets, Brazil and Argentina, each with more than 25% market share. We increased sale in the region for important models, including a 33% increase for the Ram brand, driven by the all-new Dakota midsize pickup. In Brazil, we increased sales 5% year-over-year to over 200,000 units, mostly driven by Fiat and Ram pickups, which represent the largest profit pool in the region. Moving to Middle East and Africa. We remain resilient despite weaker market conditions, particularly in Turkey, where the transition from the Fiat Egea to the upcoming Fiat Grizzly contributed to a 1.5 point year-over-year decline in regional market share. At the same time, as planned in FaSTLAne 2030, we are increasing localization in the region.

Small van production began in Turkey in October, and sales of locally produced vehicles in Algeria, a very important profit pool, increased 22%. Lastly, in APAC, while market share declined by a tenth of a point, reflecting the increased competition in the region, it is important to note that the region is enabling the rapid advancement of our FaSTLAne partnership strategy. For example, in quarter three, we began localizing production of the Leapmotor B10 and C10 in Malaysia. We also officially established our new joint venture, Dongfeng Stellantis Automotive Technology, allowing for the development of two new Jeep and two new Peugeot models to be sold in markets around the world. In summary, we navigated a challenging quarter, including lower planned volumes and raw material headwinds, all while improving year-over-year across every key financial and operational metric.

We are reaffirming our '26 guidance and our commitment to positive free cash flow in '27. The challenges are real, but our industrial performance shows that we have a firm grip on the business. Our structured, evidence-based recovery is progressing. We are taking decisive action to lower industrial cost and build the foundation for stronger financial performance in '27. Let me now hand you to João to walk you through the numbers.

João? Thank you, Antonio. While the third quarter was soft as anticipated, we continue to make progress in our turnaround.

Our actions are delivering results with year-over-year improvements across our key financial metrics. Let me start with the key figures. Consolidated shipments were 1.3 million units, down 1% year-over-year, as the increase in Europe largely offset anticipated lower volumes in North America. Net revenues were EUR 37.6 billion, up EUR 0.4 billion, or 1%, compared with the third quarter of last year, despite volume being down 1% due to growth in financial services. Adjusted operating income was $256 million in Q3, an improvement of $166 million or 184% versus last year. AOI margin improved to 0.7%, up 50 basis points year-over-year. Industrial free cash flow was negative $4 billion in Q3, an improvement of $0.3 billion compared with last year.

As Antonio made clear, we are reaffirming our guidance. Turning to the key drivers of our year-over-year AOI performance. First, on volume and mix. Overall volumes decline is likely, with the increase in Europe largely offsetting lower volumes in North America and Middle East and Africa, resulting in unfavorable regional mix. Additionally, unfavorable mix was driven by higher LEV penetration in Europe. Moving to net pricing. Pricing contributed a positive $23 million, with $421 million improvement in North America, offset by continued pricing pressures in Europe. Lastly, industrial cost. This was the single most significant driver of our performance, with an $828 million year-over-year improvement, reflecting another quarter of cost reduction. Let me highlight two factors that contributed to this strong performance. First, we maintain our diligent focus on structural cost reductions. Purchasing efficiencies, including initial benefits from VCP, accounted for the majority of the improvement.