Speculative Thoughts Behind A €22bn Provision
Mr Filosa, the top man at Stellantis, cleaned up the Tavares inheritance with a €22bn provision of which €16bn covers EV related assets NPVed at lower valuations, and have (hopefully) no cash consequences. This is a shocking amount for a company now worth less than €18bn, with shareholders equity of presumably less than €55bn, after a FY25 loss of €25.5bn. The ratio implies a 0.33x 2025 P/Book.
Here are some speculative thoughts
- Exor’s boss, Mr Elkann, appointed Mr Tavares, then Mr Filosa, to run the US/French/Italian leviathan. Exor has a 14% stake in Stellantis. Mr Elkann had approved of Mr Tavares’ plans to go all electric faster, and must have approved Mr Filosa plans to promote V8s instead. How can wise money accept such a loss of value and a brutal change of long term vision? One possibility is that Exor is done with the idea that there is leverage in size. Selling Stellantis piecemeal could be an elegant exit from an industry that looks very dead, if one has plants elsewhere than in China. Exor managed a superb value extraction stint from the old Fiat conglomerate, with the Fiat Autos rump sold to PSA. It may consider having another round, by dumping every thing except for the North American assets, worth half of the gross asset value (€39bn), or as much as the current market cap.
- Mr Elkann was expected to keep his CEOs on a tight leash. Clearly Mr Tavares has proved difficult to handle. Mr Filosa’s personality has yet to be discovered, but alluding to his predecessor as the only culprit in a sum of ill-timed choices, has been an underwhelming comment. Autos CEOs are strong personalities with limited commitment to the long term benefits to be returned to their shareholders. They always have good reasons to hop to the next job. Amongst Western managers, few are really equipped to understand their Chinese challenge, even more so when they live in the US.
- Cash in complex set ups such Stellantis, can spring nasty surprises. Inventories are the fine line between being in rude health, or giving a call to bankers. Alternatively, one can finally kill already exhausted suppliers with extended payables. However, for Ferrari and Porsche AG, P/Book well below 1x, suggests that investors' confidence in reported balance sheets, is nil. This includes the big question marks about who handles the hot potato of residuals.
- Stellantis mentioned a €6bn cash cost to the provisioning, and a -€0.8bn Ebit loss. That looks like a €7bn cash burn, which is a lot for a company with a recurring Ebit of less that €5bn as a normal run rate. As pointed out before, the net cash position of most car groups is the uncomfortable consolidation of manufacturing needs and financial activities. The manufacturing side is burning cash, and will burn more as prices are trimmed with the ambition to keep the assembly lines ticking. Financial activities record a financing spread, and delay the day of reckoning of lower natural sales, but eventually depend on residuals. Stellantis €5bn issuance with ‘hybrid’ features suggests that the financial ride will be rough. This issue equates to quasi equity à la AT1. If that hybrid walks and quacks like equity to please rating agencies, then its cost is that of quasi equity, which implies a 500bp spread for Stellantis, in spite of a nominal net cash position.
- Obviously such speculative question marks are not Stellantis specific.
Here are some speculative thoughts
- Exor’s boss, Mr Elkann, appointed Mr Tavares, then Mr Filosa, to run the US/French/Italian leviathan. Exor has a 14% stake in Stellantis. Mr Elkann had approved of Mr Tavares’ plans to go all electric faster, and must have approved Mr Filosa plans to promote V8s instead. How can wise money accept such a loss of value and a brutal change of long term vision? One possibility is that Exor is done with the idea that there is leverage in size. Selling Stellantis piecemeal could be an elegant exit from an industry that looks very dead, if one has plants elsewhere than in China. Exor managed a superb value extraction stint from the old Fiat conglomerate, with the Fiat Autos rump sold to PSA. It may consider having another round, by dumping every thing except for the North American assets, worth half of the gross asset value (€39bn), or as much as the current market cap.
- Mr Elkann was expected to keep his CEOs on a tight leash. Clearly Mr Tavares has proved difficult to handle. Mr Filosa’s personality has yet to be discovered, but alluding to his predecessor as the only culprit in a sum of ill-timed choices, has been an underwhelming comment. Autos CEOs are strong personalities with limited commitment to the long term benefits to be returned to their shareholders. They always have good reasons to hop to the next job. Amongst Western managers, few are really equipped to understand their Chinese challenge, even more so when they live in the US.
- Cash in complex set ups such Stellantis, can spring nasty surprises. Inventories are the fine line between being in rude health, or giving a call to bankers. Alternatively, one can finally kill already exhausted suppliers with extended payables. However, for Ferrari and Porsche AG, P/Book well below 1x, suggests that investors' confidence in reported balance sheets, is nil. This includes the big question marks about who handles the hot potato of residuals.
- Stellantis mentioned a €6bn cash cost to the provisioning, and a -€0.8bn Ebit loss. That looks like a €7bn cash burn, which is a lot for a company with a recurring Ebit of less that €5bn as a normal run rate. As pointed out before, the net cash position of most car groups is the uncomfortable consolidation of manufacturing needs and financial activities. The manufacturing side is burning cash, and will burn more as prices are trimmed with the ambition to keep the assembly lines ticking. Financial activities record a financing spread, and delay the day of reckoning of lower natural sales, but eventually depend on residuals. Stellantis €5bn issuance with ‘hybrid’ features suggests that the financial ride will be rough. This issue equates to quasi equity à la AT1. If that hybrid walks and quacks like equity to please rating agencies, then its cost is that of quasi equity, which implies a 500bp spread for Stellantis, in spite of a nominal net cash position.
- Obviously such speculative question marks are not Stellantis specific.
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