Stellantis shareholders sue automaker in US after low earnings

Stellantis, the European-American automaker, is facing legal action from shareholders in the United States who allege that the company engaged in fraudulent practices by concealing increasing inventories and other weaknesses. The lawsuit claims that these actions were taken before the company released disappointing earnings, which subsequently led to a decline in its stock price.

The legal complaint, filed on Thursday in a federal court in Manhattan, asserts that Stellantis artificially inflated its stock price for a significant portion of 2024. This was allegedly achieved by presenting "overwhelmingly positive" assessments regarding various aspects of the company's performance, including inventories, pricing power, new product offerings, and operating margin.

According to the shareholders, the truth behind these claims was revealed on July 25 when Stellantis announced that its first-half adjusted operating income had fallen by 40 per centto 8.46 billion euros (USD9.28 billion). This figure fell short of the 8.85 billion euros that analysts had anticipated. In response to these allegations, Stellantis stated to Reuters, declaring, "This lawsuit is without merit and the company intends to vigorously defend itself."

In addition to the disappointing earnings report, Stellantis also disclosed that its adjusted operating income margin had dropped below the double-digit full-year target that had been previously set. This news had a significant impact on the company's stock performance, with its U.S.-listed shares experiencing a decline of USD1.94, or 9.9 per cent, to USD17.66 over the two trading days following the announcement.

The lawsuit names both Chief Executive Carlos Tavares and Chief Financial Officer Natalie Knight as defendants alongside the company. Stellantis, which was formed in 2021 through the merger of Fiat Chrysler and France's PSA, encompasses 14 automotive brands including well-known names such as Alfa Romeo, Citroen, Dodge, Jeep, Maserati, Opel, Peugeot, and Ram, among others.

It is worth noting that such lawsuits are not uncommon in the United States, where shareholders often take legal action against companies following unexpected declines in stock prices. The legal action filed on Thursday seeks unspecified damages for Stellantis shareholders who held stock between February 15 and July 24, 2024. At the time of reporting, a lawyer representing the shareholders had not immediately responded to requests for comment on the case.

Despite the ongoing legal challenges, Stellantis shares closed up 1.7 per centat USD15.84 on Thursday in New York, indicating that the market's reaction to the lawsuit was relatively muted.

In a separate but related development, Stellantis recently announced potential layoffs affecting up to 2,450 employees at a suburban Detroit truck assembly plant. This decision is tied to the company's plan to end production of the Ram 1500 Classic truck at that facility.

The case, formally known as Long v Stellantis NV et al, has been filed in the U.S. District Court, Southern District of New York, under case number 24-06196. As this legal process unfolds, it will likely draw significant attention from both the automotive industry and the investment community, potentially impacting Stellantis's reputation and future financial performance.