Shares of Stellantis (NYSE: STLA) have surged from their 2022 low of $11.52 to $18.94 per share as of the market's closing. This increase can be attributed to growing demand, product line enhancement, and a forward-thinking management strategy laid out in their Dare Forward 2030 initiative, which revolves around three key pillars: Foundation, Care, and Technology. Stellantis has taken clear and decisive steps within this initiative, instilling trust among investors and yielding tangible results.

Just last week, Stellantis made two significant announcements: a joint venture with Leap Motors, a Chinese EV (electric vehicles) manufacturer, and the press release of their Q3 results. These developments offered investors insights into the financial impact of recent strikes, the sentiment around weakening demand, and Stellantis' plans for expanding their EV portfolio. I'll delve into some of the key findings below and discuss how they impact the company's overall value.

UAW Strike Effects

Following weeks of strikes in their U.S. manufacturing plants, Stellantis and the UAW reached an agreement on fair wages and benefits. While the strike is expected to affect the top and bottom lines of each of the Big Three American automakers, Stellantis anticipates a lower P&L impact compared to its North American competitors. Stellantis' CFO, Natalie Knight, foresees a revenue decline of $3 billion and a $750 million reduction in net income linked to the strike. Long-term effects will likely lead to increased expenses, but the company's focus on cost-saving measures, such as optimizing headcount and production costs, should mitigate the impact on the Income Statement.

Chinese Market Penetration

In their recent press release on the joint venture with Leap Motors, Stellantis CEO Carlos Tavares emphasized the threat posed by Chinese EV manufacturers. Tavares and CFO Natalie Knight pointed out the potential for Chinese EV players to achieve a 30% reduction in production costs and gain leverage in international expansion. The partnership with Leap Motors, a Chinese new energy vehicle manufacturer, represents a proactive move to establish Stellantis as a player in the EV market in Europe and China.

Stellantis will manage the distribution of Leap Motors' products outside China while gaining access to the Chinese market. This strategic shift reflects Stellantis' recognition of the challenges it has faced in penetrating the Chinese market in the past. The graph above shows Stellantis’ revenue % by geographic segment. The 1.6% of revenue in Asia Pacific shows room to grow in both Asia Pacific and European revenues. Although the company won't discontinue its current products, it has redirected its efforts toward supporting Leap Motors' future growth, leveraging their in-house R&D and unique vertical integration model. In the short term, this partnership provides Stellantis with an established yet growing player in the world's largest market, while in the long term, it positions Stellantis to facilitate Leap Motors' global scaling which will show clear impacts both companies top-lines. Additionally, Stellantis has another brand under its umbrella to cater to EV demand in Europe and America, further shaping its business model.

Despite the setbacks caused by the UAW strike and associated financial impacts, the growth outlook for Stellantis remains positive. As a global leader in the automotive industry, the company operates across various subsectors within its brand portfolio. The growth in international markets and diversified brands is expected to partially offset losses in North American production. Vehicle demand will continue to be a significant driver of cash flows, although there may be some dampening in 2024 due to decreased consumer spending. It is crucial to monitor the overall direction of the auto industry and Stellantis' strategic positioning as they work towards offering products at various price points and enhancing technology to remain competitive in the evolving market. These factors along with detailed DCF modeling led me to reiterate a Stellantis "buy" rating with a target price of $27.63.