Morgan Stanley has reduced its rating on Stellantis NV from Overweight to Equalweight, while simultaneously increasing its price target on the automaker to EUR9.20 from EUR8.50. The bank's reassessment underscores a disconnect between the company's valuation metrics and a set of operational weaknesses Morgan Stanley says are constraining earnings and balance-sheet health.
Key findings cited by the firm include a pattern of underinvestment and a lagging product pipeline, erosion in market share, depressed margins and negative free cash flow, as well as higher leverage versus volume peers. Those concerns align with third-party data that point to quick cash burn and weak profitability metrics; available figures put Stellantis' gross profit margin at 8.19% and show negative free cash flow.
At the time of the review, Stellantis shares were trading at $9.94, reflecting a 26% decline over the past year. Despite the stock's drop, some valuation measures look inexpensive on paper: the company yields 8.09% in dividends and trades at a Price/Book ratio of 0.33, which Morgan Stanley and other data providers view as signs of potential value if operational trends stabilize.
Summary
- Morgan Stanley downgraded Stellantis to Equalweight and raised the price target to EUR9.20 from EUR8.50.
- The bank highlighted multiple operational and balance-sheet weaknesses, including declining margins and negative free cash flow; gross profit margin is reported at 8.19%.
- Stellantis shares were trading at $9.94 and are down 26% over the last 12 months, though the stock carries an 8.09% dividend yield and a Price/Book of 0.33.
Analyst rationale and market context
Morgan Stanley framed its downgrade around a comparative view of Stellantis versus other volume automakers, concluding that the European group is trailing peers on investments, product cadence, market share performance, margins, free cash flow and leverage. The bank noted that these shortfalls have produced weaker earnings outcomes and balance-sheet metrics than those of volume competitors.
Still, the bank acknowledged that Stellantis has already underperformed among European carmakers and that its product lineup is showing sequential improvement, which could help regain market share in the U.S. and elsewhere. Morgan Stanley also emphasized the company's U.S. exposure as a medium- to long-term structural advantage, arguing the American market "should continue to be more protected from China competition for a while," an element the bank identified as its primary concern in the volume segment.
Morgan Stanley added that the U.S. market is facing headwinds following accounting write-offs at other automakers and uncertainty around tariffs affecting vehicles and parts between Mexico, Canada and Europe - all markets relevant to Stellantis' operations.
Company moves and strategic adjustments
Separately, Stellantis has announced several tactical and strategic measures in response to current market dynamics. The company will apply more aggressive price cuts on new cars in France this year to rebuild volumes in its largest European market. That initiative is presented as an acceleration of a strategy that began in late 2025 and has been intensified at the start of 2026.
Stellantis' Europe chief, Emanuele Cappellano, has said the company will not close any factories in Europe for 2026. In product lineup changes tied to shifting consumer demand and quality concerns, Stellantis will discontinue plug-in hybrid electric vehicles for Jeep SUVs and the Chrysler minivan beginning with the 2026 model year.
Corporate governance moves include the Peugeot family nominating Robert Peugeot for a final two-year term on the company's board, where he would serve as vice chairman. The family reiterated its long-term commitment to the group in that announcement.
Key points
- Morgan Stanley's downgrade reflects operational and balance-sheet shortcomings relative to volume peers; impacts include investor perceptions of earnings durability and credit metrics.
- Stellantis' stock shows deep discounts on valuation metrics, including a high dividend yield and a low Price/Book, which may attract value-oriented investors despite short-term cash-flow weakness.
- Strategic actions include deeper price cuts in France, preservation of European manufacturing capacity for 2026, and removal of certain PHEV models from Jeep and Chrysler lines for 2026.
Risks and uncertainties
- Continued negative free cash flow and weak gross margins could worsen balance-sheet pressure and limit investment flexibility - relevant to bondholders, lenders and equity investors.
- Tariff uncertainty involving Mexico, Canada and Europe represents a potential headwind for margins and cross-border competitiveness in key production and sales markets.
- Broader U.S. market headwinds, including recent write-offs by U.S. competitors, could exert additional pressure on near-term earnings and volumes.
Overall, Morgan Stanley's action signals increased caution on Stellantis' near-term earnings and leverage profile while acknowledging pockets of value and improving product momentum that could provide upside if execution and investment follow-through improve.