Stellantis N.V. (STLA) announced a massive recall of over 1.2 million Ram 1500 pickups due to a software glitch that could potentially disable the electronic stability control (ESC) system. According to the National Highway Traffic Safety Administration (NHTSA), the recall affects specific 2019 models and 2021 through 2024 Ram 1500 trucks, as reported by CNN.
Stellantis stated that the issue was uncovered during a “routine review of customer feedback,” which led to an internal investigation. This revealed that certain Ram 1500 trucks might be equipped with ABS module software prone to inadvertently disabling the ESC system.
The malfunction could cause the anti-lock brake system (ABS) to disable the ESC, posing a higher risk of crashes if the driver continues to operate the vehicle without the system’s support. However, Stellantis assured that the brakes would still function normally, and drivers would be alerted to the problem with indicator lights for ABS, ESC, Adaptive Cruise Control, and Forward Collision Warning upon starting the vehicle.
Though no accidents or injuries have been reported due to the defect, the company emphasized that U.S. safety standards require ESC to function during nearly all driving conditions. Stellantis plans to update the software to resolve the issue at no cost to owners, with notification letters expected to be sent out beginning October 3.
In addition to this recall, the company addresses potential instrument panel failures in certain 2020-2024 Jeep Gladiator and 2018-2024 Jeep Wrangler models caused by an internal short circuit. It isn’t the first time Stellantis has dealt with software-related recalls, either.
Earlier in June, the company recalled nearly 158,000 Ram 2500 pickups due to a similar issue with the stability control system. The total recall in June impacted over 211,000 vehicles, including the 2022 Dodge Durango and Ram 2500 and 3500 models. It was reported that more than 53,000 Dodge Durangos and 524 Ram 3500s were included in the recall.
Following the recall, Stellantis, which manages a portfolio of 16 international brands, moved quickly to address the problem and prioritize customer safety. Vehicle owners were urged to act promptly on the recall notice to ensure their vehicles remained safe for use.
Financially, the recall comes at a challenging time for Stellantis. For the first half of the year ending June 30, the automaker’s revenues decreased 13.6% year-over-year to €85.02 billion ($94.24 billion). Operating income took an even steeper hit, falling 50.9% to €6.64 billion ($7.36 billion).
Moreover, Stellantis reported a 48% drop in net profit for the six-month period, amounting to €5.65 billion ($6.26 billion). This sharp decline was primarily due to decreased sales volumes, ongoing production challenges, and a shrinking market share in North America. The company’s adjusted earnings per share also fell 34.6% year-over-year to €2.36.
CEO Carlos Tavares acknowledged that the company’s performance lagged behind expectations, citing both industry-wide challenges and internal hurdles such as inventory mismanagement and manufacturing inefficiencies. Nevertheless, Tavares remains optimistic about Stellantis’ strategic vision, which includes launching 20 new models and focusing on affordable electric vehicles (EVs).
Despite these setbacks, Stellantis is holding firm on its 2024 financial targets, which include achieving a double-digit operating income margin and returning significant capital to investors. The company is doubling down on new model launches, addressing specific issues in the U.S. market, and considering aggressive measures like price cuts and potential layoffs to improve its bottom line.
However, investor sentiment has been lukewarm, with STLA’s shares dropping more than 33% year-to-date, reflecting ongoing concerns over the company’s declining market share in North America and a 16% drop in U.S. sales.
While the recent recall and financial challenges may seem concerning, analysts maintain a cautiously optimistic outlook for Stellantis. Despite facing short-term headwinds, such as the cost of repairs and potential regulatory fines, the company’s global footprint and diversified operations could help mitigate the long-term financial impact.
Street expects STLA’s revenue and EPS to increase 5% and 10.3% year-over-year to $198.42 billion and $5.23, respectively. These projections suggest that while the recall may cause some immediate turbulence, the company remains positioned for steady growth in the coming years.
Citi analyst Harald Hendrikse maintains a “Hold” rating on the stock and has slightly raised the target price from $23.58 to $23.74, representing a potential upside of over 52% from current levels. Jefferies analyst Philippe Houchois has also issued a “Hold” recommendation, reflecting the overall sentiment that Stellantis, despite current issues, could deliver in the long run.
Investors must consider that the automaker operates across multiple regions and sectors, with a robust presence in EV production and a broad portfolio of brands. This global diversity helps cushion the blow from challenges in individual markets, such as the recall in the U.S. while allowing the company to tap into high-growth areas like EVs and emerging markets. With that in mind, it could be wise for investors to wait for a better entry point in this stock now.
