Moody’s Ratings has today downgraded Stellantis N.V. (NYSE:STLA)’s long-term issuer, senior unsecured instrument ratings, and backed senior unsecured instrument ratings from Baa1 to Baa2. Simultaneously, the company’s other short-term rating was affirmed at (P)P-2. The outlook for all entities was revised to stable from negative.

The downgrade to Baa2 was driven by the expectation of a challenging recovery of credit metrics in the difficult market environment. Stellantis’ performance in 2024 contracted due to aggressive de-stocking actions and price reduction in the US, and inventory reduction and delays in product launches in Europe. The company has initiated significant measures to restore operating performance, but the challenging market environment increases execution risk and might slow the expected recovery.

Stellantis has launched new models in the B and C segment in Europe during the first quarter and important launches in the US such as the Jeep Cherokee are expected for the second half of this year. The benefits of these launches will only be fully visible by 2026. The company’s strong liquidity profile gives the group time to execute its plan and navigate current market uncertainty.

The rating incorporates a cautious outlook on the macroeconomic environment, including a slowdown of the G-20 GDP growth to 1.9% in 2025 (down from 2.9% in 2024). Unpredictable US trade policy could undermine consumer confidence and disrupt supply chains. As of today, the direct cost of tariffs on imports of finished vehicles and components could be $2.7 billion on an annual basis, without any mitigation. The 25% tariffs on imports of finished vehicles and components from Mexico, Canada, and Europe have not been fully factored into the forecast due to the unpredictability of US trade policy.

The stable outlook indicates that despite the uncertain market environment, Stellantis is expected to gradually improve its operating performance on the back of model launches in Europe and the US and maintain a conservative financial policy. The company’s strong cash balance serves as an important buffer in the current volatile and challenging market environment.

At the end of December 2024, Stellantis had €32 billion of cash and cash equivalents, as well as €2.5 billion marketable securities. In addition, Stellantis has access to an undrawn €12 billion revolving credit facility. Additional liquidity sources include funds from operations forecasted at €12.1 billion for this year.

These funding sources will cover Stellantis’ anticipated cash needs for this year including working cash (estimated at €4.7 billion annually), capex (including leases) of around €12.0 billion, dividend payment as well as short-term debt maturities (€5.7 billion in 2025 including financial services debt but excluding ABS).

The rating could be upgraded if Moody’s adjusted EBIT margin increases towards 7% on a sustainable basis, debt/EBITDA improves below 2.5x sustainably, and the company generates meaningful free cash flow steadily. Conversely, the rating could be downgraded if Moody’s adjusted EBIT margin remains below 5% sustainably, debt/EBITDA remains well above 3.0x sustainably, or free cash flow remains negative and/or liquidity weakens.