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STLA Finally Joins the EV Race: Is That Enough to Bet on the Stock?

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Stellantis (STLA - Free Report) — born out of the mega merger between Fiat Chrysler and PSA Group — has been relatively slower than peers to embark on the electrification journey. Perhaps, the automaker’s vehicle lineup — which is tilted toward heavy-duty vehicles — has resulted in the delay in transitioning from internal combustion engines.

But finally, the company is revving up its electric vehicle (EV) game to catch up with the soaring popularity of electrified future. Stellantis held EV Day on Jul 8, highlighting ambitious e-mobility goals to gain a strong footing in the red-hot EV landscape. But exactly how ambitious are these goals? Will its EV strides set it apart from peers? How long will it take for the firm’s EVs to hit the roads? Are its EV bets compelling enough for investors to add the stock to their portfolio? Before that, let’s delve into major announcements by the firm on its EV Day.

Key Takeaways From the Event

Stellantis aims to invest €30 billion ($35.5 billion) in EVs and related technology through 2025. It targets hybrids and EVs to account for 70% of its total vehicle sales in Europe. In the United States, the company aims for more than 40% of its total sales to comprise low-emission vehicles within the same time period.

The firm is set to establish five gigafactories in North America and Europe through this decade, aiming to offer electrified solutions across all 14 brands including Jeep, RAM, Citroën and Peugeot. The auto giant will deliver upon its electrification strategy by securing 130 gigawatt hours (GWh) of battery capacity by 2025, which will expand up to 260 GWh by 2030.

Stellantis will have in place two battery chemistries (high energy-density and nickel-cobalt free options) by 2024, with the goal of introducing solid-state battery technology by 2026. The company expects battery pack costs to decline more than 40% by 2024 and an additional 20% by 2030. The firm’s decision to deploy EV batteries sans nickel and cobalt would help reduce the costs.

The auto giant has collaborated with two lithium suppliers, one in Europe and other in North America, for sustainable supply of the most important metal in EV batteries. Stellantis is in the final stages of securing a battery partner in North America. Rumors are rife that Samsung SDI will be teaming up with Stellantis for the same.

The firm will be designing four dedicated EV platforms (STLA Small, Medium, Large and Frame), each supporting annual production of up to 2 million units. The platforms will have a range of up to 300 miles (for STLA Small) and 500 miles (for STLA Large and Frame) on a single charge.

How Bold are STLA’s EV Goals Compared to Peers?

Indeed, Stellantis is set to up its ante in the EV landscape. But seemingly, the event wasn’t able to generate as much excitement among investors as expected, as the stock slid more than 3% post the announcement. While shares again picked up the next day, we believe that the EV day of Stellantis was not a particularly hit event, so to say.

For starters, Stellantis is following the steps of other auto giants including Tesla (TSLA - Free Report) , Volkswagen (VWAGY - Free Report) , General Motors (GM - Free Report) and Ford (F - Free Report) . It started with Tesla’s Battery Day held in September 2020, wherein Musk provided a series of vertical integration improvements, gave updates on its battery technology and pricing of future cars, and a lot more. Per Volkswagen’s five-year plan unveiled in November 2020, this Germany-based auto giant intends to spend $86 billion in e-mobility, hybrid technology and digitization through 2025, with $41 billion allocated just toward eco-friendly cars. In the recent months, U.S. auto giants General Motors and Ford unveiled aggressive electrification plans. Through 2025, General Motors and Ford are set to splurge $35 billion and $30 million, respectively, in electrified future.

With most of the auto biggies going an extra mile to demonstrate their e-mobility prowess and competition in the space heating up, Stellantis — being the fourth-largest automaker in the world (in terms of volume) — had to get in the game. The EV plans laid out by the firm were rather expected and did not have anything unique in particular when compared to its peers’ targets. In fact, Stellantis might be rather lagging behind in some aspects.

For instance, Stellantis won’t be launching its all-electric RAM pickup until 2024, which would give its American counterparts including General Motors and Ford a head-start of a couple of years. While GMC all-electric Hummer will go on sale by the end of this year, F-150 Lightning Pro will hit the markets next year.

We know that Stellantis’ most popular brands — Jeep SUVs and RAM pickups — have no electric-powered models on sale currently and just three hybrid options. And it will take at least another three years for the company to bring the electrified versions of the same to the market. It is set to offer an electric or plug-in model in every vehicle segment under its Jeep brand by 2025. An electric Dodge muscle car will be launched by 2024.

Another thing worth noting here is the fact that Stellantis targets to have 55 EVs in the United States and Europe by 2025, comprising 40 fully-electric and 15 plug-in options unlike automakers like General Motors and Ford, which have committed to go all-electric in the next 10 years or so. While Ford is set to go all-electric in Europe by 2030, General Motors intends to completely phase out gas and diesel engines by 2035. Also, unlike Tesla, Volkswagen and General Motors, Stellantis is not focusing on building battery cells in-house and will be reliant on battery supply from partners.

Nonetheless, given the fact that Fiat Chrysler has long been a laggard when it comes to e-mobility technology, the current goals do give us a reassurance that the company is getting serious about the EV business.

What Should You Do With the Stock?

Stellantis forecasts annual cash synergies of more than €5 billion from the merger, which has been closed early this year. It expects double-digit adjusted operating income margins by 2026 and claims that the synergies will bring EV costs in parity with ICE vehicles. Well, only time will tell.

As for the first half of this year, the firm expects free cash flow to be negative amid low production and high capital spending. While high R&D expenses and semiconductor supply woes will prove to be near-term challenges, investors are recommended to retain this stock in their portfolio. Yes, the company joined the EV party late and will be a couple of years behind its peers when it comes to EV launches but the stock still makes for a good choice for long-term value investors. This Zacks Rank #3 (Hold) stock has a long-term expected EPS growth rate of 20.61% and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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