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Shareholders sue Stellantis over allegedly hiding struggling profits
Colin Velez
August 16, 2024
Stellantis shareholders are suing the automaker for allegedly covering up its ailing business through part of 2024.
Why this matters: In its earnings report for the January-June period, Stellantis revealed its net profit had declined 48% year-over-year, performing far worse than its primary competitors. In the months before, media outlets flagged an apparent exodus of executive talent, including Chief Customer Experience Officer Richard Schwarzwald. The brand has since promised to cut costs and restructure its business model, recently launching a voluntary separation program to spur workforce reductions.
Driving the news: Long v Stellantis will determine whether the company defrauded shareholders by hiding evidence of its poor performance in the six months leading up to the release of its financial statements.
The plaintiffs argue that the brand made “overwhelmingly positive” statements concerning its business performance, falsely boosting the value of its stock. Damages have yet to be specified, although stocks traded 9.9% lower two days after the earnings report.
In a statement to Reuters, Stellantis said the lawsuit “is without merit” and pledged to “vigorously defend itself.”
In its monthly and quarterly sales reports, the company acknowledged declining sales and revenue but appeared optimistic. However, profits weren’t reported until late July.
Zooming out: It isn’t out of the ordinary for shareholders to (unsuccessfully) sue businesses after a surprise drop in stock value. And while the company did put on a positive front in the months leading up to its earnings report, it made little attempt to hide its worsening sales.
At the end of Q2, several weeks before its first-half release, the brand posted a 21% decline in U.S. sales.
Earlier in the year, it also noted Q1 revenues had fallen 12%, although it didn’t report profits.
Zooming in: At the same time, while its struggles were plain to see, the brand heavily emphasized its strengths, including firm pricing and upcoming product releases. Stellantis CEO Carlos Tavares’ opening statement in the automaker’s first-half earning report marked a sudden change in tone, although he still attempted to allay fears.
“The Company’s performance in the first half of 2024 fell short of our expectations, reflecting both a challenging industry context as well as our own operational issues.”
Bottom line: Whether the plaintiffs have a case will ultimately depend on the New York district court. However, it is important to never take automaker statements at face value: diving deeper into the trends is important to protect your own interests, be you a dealer, consumer, or shareholder.
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