Philippe Houchois

Philippe Houchois asked about recent quality developments, specifically if quality is trending up, down, or flat, and sought clarification on North America's operating leverage, particularly the volume drop-through and the impact of mix, asking for an indication of a normal drop-through rate.

Answer

CEO Antonio Filosa stated that quality is improving significantly, citing 1-month in-service indicator improvements of 50% in North America, over 30% in Europe, and 20% in South America, driven by organizational changes and 2,000 new engineers. Regarding North America's operating leverage, he reiterated that H2 2025 mix was affected by solved operational issues in truck production, and expects significant mix improvement in Q1 2026 from increased light/heavy-duty truck production and higher V8 HEMI engine demand.

Philippe Houchois from Jefferies Financial Group Inc. asked for an update on recent quality developments, specifically if quality is trending up, down, or flat. He also revisited the topic of operating leverage and volume drop-through in North America, seeking clarification on the mix effect and expectations for a normal drop-through percentage.

Answer

CEO Antonio Filosa stated that quality is improving significantly, citing a 50% improvement in North America, over 30% in Europe, and 20% in South America for the one-month in service indicator. He attributed this to organizational changes, including placing quality leadership in the SLT team and hiring 2,000 additional engineers. Regarding North America's operating leverage, he reiterated that H2 2025 saw a mix effect from constrained light-duty and heavy-duty truck production, which has been resolved. He expects mix to improve significantly in Q1 2026 due to increased truck production and higher demand for the profitable HEMI V8 engine.

Philippe Houchois inquired about the rationale behind the perpetual hybrid bond, suggesting it might be primarily to protect the company's credit rating rather than to increase liquidity. He also asked if protecting the rating supports investments in the U.S. Finco organization, if the balance sheet constrains Finco growth, and about the expected cost of this instrument.

Answer

João Laranjo, Chief Financial Officer, confirmed that the hybrid bond is a tool to maintain a strong balance sheet, protect the Investment Grade rating, and support the growth of the Finco in the U.S. He noted that the current cost of hybrids is at historical lows, making it a competitive instrument, and that other large companies, particularly in Europe, utilize such instruments.

Philippe Houchois inquired about the rationale behind the perpetual hybrid bond, specifically if it's primarily to protect the rating rather than add liquidity, and if the balance sheet constrains the Finco's growth. He also asked about the expected cost of this instrument.

Answer

CFO João Laranjo explained that the hybrid bond is an instrument to maintain a strong balance sheet, protect the investment grade rating, and support the growth of the Finco in the U.S. He noted that the cost of the hybrid is currently at historical lows, making it a competitive instrument.

Philippe Houchois sought clarification on the free cash flow dynamics, specifically regarding the expected improvement from H1 to H2 2025, considering increased capacity utilization and working capital contributions. He also asked about the trajectory of tariff expenses, assuming 2026 would be higher due to Ram in Mexico and Cherokee ramp-up, and if 2027 tariffs would be lower due to U.S. reshoring.

Answer

CFO Joao Larangeira confirmed the analyst's understanding of free cash flow dynamics, emphasizing North American volume improvement. CEO Antonio Filosa explained that the new strategy aims to reduce tariff exposure in future years, leveraging industrial capacity in North America, including the U.S.

Philippe Houchois sought clarification on the free cash flow dynamics, specifically regarding the expected improvement from H1 to H2, and whether increased capacity utilization and working capital (especially payables) would be significant contributors. He also asked for clarification on the refined net tariff expenses, inquiring if 2026 would see higher tariffs due to Ram in Mexico and Cherokee ramp-up, and if 2027 tariffs would be lower due to reshoring U.S. production.

Answer

CFO Joao Larangeira confirmed the analyst's understanding of free cash flow dynamics, noting that North America would be the primary region for volume improvement. CEO Antonio Filosa explained that the new strategy aims to grow in the U.S. market while also reducing exposure to tariffs in future years, leveraging industrial capacity in North America, including the U.S.

Philippe Houchois from Jefferies questioned the H2 free cash flow guidance, asking if the guided 'improvement' would be enough to offset the H1 outflow and why management seemed reluctant to guide on working capital. He also asked about the launch timing for new Ram models.

Answer

CEO Antonio Filosa explained the guidance reflects a significant acceleration from a breakeven H1, which must also absorb a heavy €1.2B tariff impact in H2. CFO Doug Ostermann added that forecasting is difficult amid external volatility. On product timing, Mr. Filosa stated that the new Ram V8 and Express models are expected to arrive in dealerships during Q4 2025.

Philippe Houchois questioned the significant gap between operating cash flow and industrial free cash flow, suggesting the company should start reporting industrial and financing cash flows separately. He also asked what specific actions Stellantis is taking to regain fleet market share, particularly for the Ram brand, which has historically been strong with commercial buyers.

Answer

CFO Doug Ostermann explained the discrepancy by noting that operating cash flow includes the financial services business, which used over $4 billion in capital for its rapid expansion, whereas industrial free cash flow is a separate perimeter. Regarding Ram, he detailed a multi-pronged strategy: reintroducing the V8 engine, launching a lower-priced 'Express' tier to target a segment previously covered by the old DS truck, increasing production to support fleet sales, and boosting brand excitement by re-entering NASCAR.

Philippe Houchois questioned the significant gap between operating cash flow and industrial free cash flow, suggesting separate reporting for industrial and financing activities. He also asked what specific actions Stellantis is taking to regain fleet market share, particularly for the Ram brand.

Answer

CFO Doug Ostermann clarified that the operating cash flow figure includes the financial services business, which consumed over $4 billion in capital for its rapid expansion. In contrast, the industrial free cash flow is a separate industrial-only perimeter. To regain Ram's commercial share, Ostermann stated Stellantis is reintroducing the V8 engine, launching a lower-priced 'Express' tier, increasing production, and re-entering NASCAR to boost brand excitement.

Philippe Houchois questioned the large gap between operating cash flow and industrial free cash flow, noting the implied CapEx seemed very low. He also asked what specific actions Stellantis is taking to regain fleet market share, particularly for the Ram brand, which has seen significant losses.

Answer

CFO Doug Ostermann clarified that operating cash flow includes the financial services business, which consumed over $4 billion in capital for its expansion, while industrial free cash flow does not. Regarding Ram, Ostermann detailed a multi-pronged strategy: reintroducing the V8 engine, launching the lower-priced 'Express' model to address a key market segment, increasing production to better serve fleet customers, and boosting marketing by re-entering NASCAR.

Inquired about the large gap between operating cash flow and industrial free cash flow, suggested separating financial services cash flow in reporting, and asked about the strategy to regain fleet market share, particularly for the Ram brand.

Answer

The CFO explained the cash flow gap is due to the inclusion of the rapidly growing financial services business in operating cash flow, which is excluded from industrial free cash flow. He acknowledged the reporting suggestion. To boost Ram's fleet share, he detailed plans to reintroduce the V8 engine, launch a lower-priced model, increase production, and enhance marketing.

Philippe Houchois asked about the impact of a weaker dollar and 0% import duties into Europe on Rivian's strategy, specifically if it shifts thinking towards a faster and larger rollout in Europe, and whether direct selling from U.S. exports or local distribution would be more appropriate. He also inquired about the expected time lag between R2 hitting the road and R3's launch.

Answer

RJ Scaringe, CEO, expressed enthusiasm for the 0% export tariff to Europe, acknowledging it could enable an earlier entry into the European market, though no specific timing has been announced as Rivian prioritizes achieving critical mass in the U.S. He confirmed that R2 and R3 are architected for Europe. Regarding R3, he stated it would be produced only in the Georgia facility, which is launching in late 2028, implying R3 would not launch sooner than that timeframe.

Philippe Houchois asked about the impact of a weaker dollar and 0% import duties into Europe on Rivian's European strategy, specifically if it suggests a faster or larger rollout, and whether direct selling or local distribution would be preferred. He also inquired about the expected time lag between R2 hitting the road and R3.

Answer

CEO RJ Scaringe expressed enthusiasm for the 0% export tariff, acknowledging it could enable earlier entry into Europe, though Rivian needs to achieve critical mass in the U.S. first. He confirmed R2 and R3 are architected for Europe. Regarding R3 timing, he stated it would be produced only in the Georgia facility, which is launching in late 2028, so R3 would be no sooner than that.

Philippe Houchois expressed surprise that inventory didn't increase more, given the overproduction and other factors, and asked if any actions were taken to free up capital. He also questioned whether Rivian's autonomy platform could be shared with Volkswagen to leverage its larger fleet for data collection.

Answer

CFO Claire McDonough noted that while finished goods inventory rose by $563 million, raw materials inventory fell by $220 million. COO Javier Varela elaborated that the company is implementing lean manufacturing principles, reducing incoming material inventory and optimizing logistics flows. CEO Robert Scaringe clarified that the autonomy platform is entirely separate from the Volkswagen JV, which focuses on the operating system and zonal ECU architecture.

Philippe Houchois of Jefferies asked for confirmation that the 300 basis point tariff impact is before major mitigation efforts. He also explored the strategic challenges of shifting powertrain production to the U.S. and whether ICE capabilities should eventually move to North America.

Answer

CFO Harald Wilhelm confirmed the 300 basis point impact includes inventory and preliminary measures but not significant future actions like further localization. CEO Ola Kallenius explained that while powertrain assembly can be shifted, deep localization is a longer-term endeavor, and moving the entire European ICE industrial base would be cost-prohibitive. He also advocated for a pragmatic decarbonization path in Europe.

Philippe Houchois of Jefferies sought clarification on whether the guided 300 basis point tariff impact is before or after mitigation measures. He also asked about the long-term strategic possibility of shifting internal combustion engine (ICE) powertrain production to North America.

Answer

CFO Harald Wilhelm reiterated that the 300 basis point impact includes inventory and preliminary measures but excludes major actions like localization. CEO Ola Kallenius explained that moving the entire European ICE industrial structure would be cost-prohibitive in the medium term, and advocated for a pragmatic path to decarbonization in Europe.

Philippe Houchois of Jefferies asked if the agency sales model implemented in parts of Europe has led to a meaningful margin improvement that wouldn't have been achieved otherwise. He also inquired about the contractual term of the joint ventures in China and whether their expiration could trigger a strategic reorganization.

Answer

CEO Ola Kallenius explained that while a direct before-and-after comparison is difficult, the agency model has shown positive results, including significantly higher customer satisfaction due to price transparency. He believes the net effect is positive by eliminating intra-brand competition and enabling direct customer relationships and better data management. CFO Harald Wilhelm addressed the China JV question, stating they are very happy with their partner for the long term. He noted that contractual terms are confidential but emphasized that discussions are focused on installing new products for the future, indicating a strong ongoing partnership.

Philippe Houchois from Jefferies Financial Group Inc. inquired about the Q1 R&D tailwind, asking if it was seasonal and if a longer EV transition necessitates reinvestment in ICE. He also asked for the company's thoughts on adding range extenders to the portfolio, given market trends in the U.S. and China.

Answer

Executive Harald Wilhelm highlighted the importance of plug-in hybrids, calling Mercedes' broad portfolio a 'jewel in the toolbox' that is ready to meet demand during the transition. He clarified that while EV investments are not slowing, the company continues to invest to keep its ICE portfolio cutting-edge. Wilhelm noted the Q1 R&D figure is not a run-rate for the year, as it reflects phasing and stringent prioritization of all investments.