24/7 Wall St. Insights

• Stellantis N.V. (NYSE: STLA) warned that its financial results for the year would be worse than expected.
• Ford Motor Co. (NYSE: F) investors worry it will be the next global automaker to disappoint the market.
• Also: Dividend legends to hold forever.

Global carmaker Stellantis N.V. (NYSE: STLA), the parent of Jeep, Chrysler, and Dodge, warned that its financial results for the year would be much worse than expected. Volkswagen posted similar warnings recently. The Stellantis news dragged its stock down 13%. Shares of Ford Motor Co. (NYSE: F), a direct competitor to Stellantis, immediately dropped almost 3%. That means Ford’s stock has fallen about 14% this year.

Daunting Challenges

According to Reuters, Stellantis management said it would burn through $5 billion to $11 billion this year. Previously, it forecasted it would be cash-positive. Costs to revive its U.S. sales and competition from China were listed as causes.

The challenge faced by global car companies in China is staggering. International manufacturers, including Stellantis, are losing market share inside China. Today, it has a market share of only 1% of the world’s largest car market. Ford’s figure has also fallen recently. Among the reasons is the rapid adoption of electric vehicles (EVs) in China. Local manufacturers like BYD dominate the sector.

Over time, the second and more daunting challenge is that Chinese car companies have started exporting EVs. China EVs can have price tags as low as $15,000. Legacy car companies and Tesla Inc. (NASDAQ: TSLA) have yet to produce EVs from which they can profit at a $25,000 MSRP. Tesla plans to introduce a new model with a price close to that. The only reason Chinese car companies do not compete in Europe and the United States is high tariffs. It is impossible to determine how long those will last.

Costs are another reason Stellantis says its financials have weakened. This has also been a challenge across the industry. Volkswagen may close plants in Germany for the first time in its history. Ford recently said a new UAW contract would cost it $8.8 billion.

Ford investors have watched as its competition cut forecasts. Wall Street is worried Ford will be the next to disappoint the market.

Three Warning Signs Ford Is in Trouble

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