Doug Osborne & Nathan Denlon: All right. Good afternoon, everybody. Thanks for joining us for this session on Stellantis. It's my great pleasure to welcome Doug Osterman, Chief Financial Officer for Stellantis, in a very exciting time for autos. And maybe I'll start with a piece of news that's especially exciting for you guys because you just announced your new CEO. What should investors know about Antonio?
Doug Osterman: Well, a couple of things. ANTONIO I MEAN I'VE KNOWN HIM FOR MY WHOLE TIME THERE YOU KNOW EIGHT YEARS AND I THINK HE'S AN AMAZING PERSON AND A FRIEND BUT I WOULD POINT OUT A COUPLE THINGS THAT I THINK ARE IMPORTANT FOR INVESTORS TO KNOW ONE IS THAT ANTONIO HAS YOU KNOW KIND OF THIS PROVEN TRACK RECORD of of improving things and building things and kind of getting at issues and being very hands on and that's that's been really important in his whole career I think you know from the time that he worked in in Europe you know starting in the one of the paint shops in one of our plants right very ground level understanding of manufacturing in the business his time running Latin America where he built one of the most successful parts of our entire organization. As you probably know, Latin America, we have the number one position. We make extremely good margins. We're very well positioned there. Antonio was head of our Latin American business for a long time. And then now in North America, where he ran previously one of our largest global brands, Jeep, and then was more recently head of North America. And just in the short time that he's been head of North America, fixed, you know, what was a significant inventory problem, adjusted pricing, built back the relationship with the dealers, you know, a very action-oriented agenda in a fairly short period of time. So I think, you know, he's always a man with a plan and has a great track record. In addition, you know, of course, he's worked in three of our most important markets, right? He's worked in Europe. He's worked in LATAM. He's worked in in North America, he's run brands. And I think his personality also, I think he's a very kind of open leader that I think really works well with across the organization, across people, across brands, kind of a relationship builder. And I think also interestingly, especially for today's world, having worked in LATAM, which, you know, Brazil is a fairly protected market, a market where government policy is extremely important, you know, a market that's driving towards flex fuel and ethanol and all these things. You know, having had that experience for quite a few years, right, in working through government policy, working with governments, probably an important skill set today, right? So I think it's a great choice, and I'm... very much looking forward to working with him on a broader set of topics as he moves forward into his new responsibility.
Doug Osborne & Nathan Denlon: You're also still kind of newish. So I'm telling you you're newer, but you're still newish, right? So you stepped into the CFO role probably during one of the most complex times for Stellantis in recent years, right? You had an internal reset. There were a lot of growing external pressures. What's the most valuable thing you've learned
Doug Osterman: over the past nine months? That the CFO job's a lot harder than it looks. No, I would say a couple things. One, to always be ready for change and be constantly thinking, trying to step, you know, think two steps ahead because we're experiencing change at kind of a very rapid pace right now. as you know, we all kind of have grown used to kind of a lot of the technology shift that's been going on for a couple years now in the industry. But, you know, the geopolitical changes, et cetera, that have added on top of it has made for a very dynamic environment. And so you just have to approach, you know, every day when you come to the office that there's going to be a new challenge, and that's part of the deal and it's part of the excitement. I would say with that, though, I've also learned that it's just reinforced my belief that you need to work cross-functionally and reach across the organization to address these issues, right? Because if you take an issue like tariffs, of course there's a financial viewpoint, right? And I'm sure everybody here wants to know what's the impact, how much is the number, what's the number, right? But there's so many impacts, right? You need to talk to your government relations group. You need to talk to your manufacturing group. The supplier, the group that manages all the suppliers, what are the impacts there, right? It's very complex, right? The industry is just complex. And so your ability to work across silos and to work across the organization and gain from those perspectives to really understand things holistically, very important. I would say the other thing is it's reinforced my treasure background, strongly held belief in a strong balance sheet, right? So we've always been an industry that's cyclical, that goes through some extreme ups and downs, but I'd say, you know, again, this series of...
Doug Osborne & Nathan Denlon: changes just again reinforces my belief that you know in this industry you need a strong balance sheet in the time leading up in the couple of years leading up to 2024 a lot of the investment debate was around well you've got this X 15 20 25 30 billion extra cash on the balance sheet why don't you do something with it are you are you happy that it's still there I'm happy that we've been smart about managing it and I'm proud of the fact that you know when I was group treasurer I
Doug Osterman: We work very consciously to build a fortress balance sheet so that if we had some periods, which inevitably you do in this industry, where you have some down cycles, where you go through some cash as we did last year. You don't have to immediately start addressing things like, oh, can we afford a dividend? Do we have to change our dividend policy? We built a fortress balance sheet so we could weather some of those storms that inevitably come. And so I feel pretty good about where we're at and the fact that we're able to stick with our dividend policy and return capital to shareholders in a strong way and hopefully we'll continue to do that, right?
Doug Osborne & Nathan Denlon: You already addressed or touched on the topic du jour on tariffs and so let's do that. You said you're gonna ask me what's the impact and what's the number, so what's the impact and what's the number?
Doug Osterman: You know, I have to be transparent. I mean, I have been reluctant to put a number out there because things have changed so dramatically. It seems like every week, right? I mean, the policy, and I see that not negatively because really what I see is the administration working with the industry to understand the impacts and adjust, right? And frankly, the adjustments they've made have been pretty impactful. And so I think it's a good dialogue. I think it's a good progression but it is causing a lot of change. And but I want I was reluctant to put out a number that you know may not be good in like five days. And so it's kind of tough and it is does continue to evolve. But look I think with the visibility that we have today you know first thing before I mention any numbers you know I want to kind of set the stage a little bit. which is you should, you know, I think it's important for the investment community to recognize that our situation is much different than some of the competitors that you've heard from in this very conference, right? We have a bit different situation than GM and Ford in that over 50% of our income generation is outside of North America. Not just outside the US, but outside of North America altogether, over 50%. That's a bit different than some of our competitors. That being said, you know, within the U.S., I think we will be able to manage the tariff impact given, again, what we know today to be between a net figure of, let's say, a billion to billion and a half. But again, we'll see how it evolves. There's a lot of bilateral discussions going on between the administration of various countries, and some of those could help to bring it down. we may find additional ways to mitigate it. But I think order of magnitude, that's kind of where we're at.
Doug Osborne & Nathan Denlon: That's interesting. And if you think about kind of next year or the year after, and let's say kind of the policy intent remains similar, however that's phrased ultimately, what are kind of the actions you can take easily and what are some of the actions that will take a little bit longer as you try to adapt to that?
Doug Osterman: Right. So I think there's a couple things that we're looking at. One is, you know, in the near term, I think there is a lot of opportunity to shift sourcing. And so if you look at vehicles that are produced in Mexico and Canada, of course, you know, you can't move those overnight. And we know that everything that's USMCA compliant, you can deduct the US content when you bring it into the United States. And so I think there's a big opportunity to increase the US content. Right now, 100% of the vehicles that we produce in Mexico and Canada are USMCA compliant. And so the opportunity, of course, is to increase that US content through our supply base. Some of it will be quick and easy. We have some suppliers that have excess capacity in the United States. They can shift some of that capacity for us in a fairly efficient and quick manner. and others will just take a long time period, right? It's fairly complicated. On the US side, again, the short-term actions really revolve around the supplier community because, again, we pay tariffs on anything that is a non-USMCA compliant coming in the United States, and again, there's an opportunity, right, to shift to USMCA compliant suppliers, right? And so there's a lot of discussions going on with the supplier community on how best to do that. You know and longer term I think what you'll see is as we face the industrialization of upcoming products you know whereas in the past when we were strictly following USMCA which was put in place five years ago roughly you know there's always this discussion about OK how best to structure the supply chain and the assembly of a new product. And, you know, should we put it in Mexico, should we put it in the U.S., right? I think clearly we're going to be more biased toward the U.S. manufacturing going forward. So when we look at the opportunities that we have to get into, say, the midsize truck segment, which we don't play in right now, which in the United States is dominated by Toyota right now, We have a natural space there with the Ram brand. People love the Ram brand. I'm sure they'd love to have a midsize truck from Ram, but we don't offer it right now, but we have one in the works. You know, I'm sure we will industrialize that product in the United States. Our intent, you know, going forward and always for the most part has been to produce where we sell fundamentally. And if you look around the globe, you know, we source more than 80% of the products that we sell in each region of the globe from that region, right? I mean, it's our strong bias. But I think those decisions will be more clear going forward, for sure, certainly in the case of the United States. And we like the fact that long-term, the administration wants to support U.S. manufacturing. We're a major U.S. manufacturer. Long-term, that should be good for us, right? But we need to work together.
Doug Osborne & Nathan Denlon: On the on the q1 revenue call you felt the need to pull back guidance at that point and kind of Has there been more progress and clarity and you just mentioned kind of the one to one and a half Net tariff impacts that if we take the original guidance and add that Are we kind of are you on track with within that framework and what's kind of deviator been different compared to your expectations?
Doug Osterman: Yeah, I mean, I'm not going to set new guidance today and But I hope, as I said on the Q1 call, because I think there's still some things to clarify with the administration that will help us narrow that range and really understand the dynamics. But as I said on the Q1 call, we would really like to return with some guidance in the near future. And I hope maybe the H1 call, we can do some of that. We'll see. But in terms of are we on track, I would say we're making good progress and meeting a lot of the expectations in markets outside the United States. I would say in the United States, of course, we have the tariff headwind. I think you've seen from our sales numbers that the fleet side of the business is not progressing as quickly as we'd like. So that's a bit of a headwind on North America as well. that's, I would say, not as strong as what we had hoped for or expected when we originally put out the guidance. I would say there's some FX headwind, which is, I think everybody knows, a stronger euro, right, makes earnings overseas worth a little bit less. So that's a bit of a headwind. But, yeah, I'd say in general, you know, roughly on track with those few caveats.
Doug Osborne & Nathan Denlon: Are there any intermediate data points before we get to your H1 reporting where you'd say, look, if investors were to expect volumes to behave like this or inventory to behave like that, that we can kind of get some confidence in upcoming weeks that we're progressing in a good way?
Doug Osterman: Yeah, I mean, I think there's a couple of really positive signs. One, I talked a little bit last year on some of the earnings calls and some of the investor conferences about the fact that we had significant product delays last year that were related to the first top hats or the first products coming off these new multi-energy platforms. We've launched basically four new multi-energy platforms. And the product, the first product of each of those platforms, most of them experienced significant delays, delays of six plus months. So if you look at you know, Stella medium, Stella large, the first installation of Stella smart car in Europe, we had delays in the first vehicle. Now, the reason we did that, because we thought it was really important to get the first vehicle right, right, launch with the right quality, et cetera. And, you know, I'm happy as we sit here today to report that, you know, when I look at the sister car launches that have all happened so far this year, they've all largely been on time. you know, give or take a week here or there, but they've all launched basically on time. And so I think we're getting better, one, at execution, but I think also the fact that we took our time with the first vehicle has paid off now, right?
Doug Osborne & Nathan Denlon: And the Cherokee is now late Q3. Is that kind of where it was supposed to be?
Doug Osterman: Yeah, yeah. I mean, Cherokee really, you know, has always been kind of in that time frame. And it's a very exciting vehicle. It's one, you know, for Jeep, which... is the strongest SUV brand in the market, they need to have to return to the biggest SUV segment in the market. And that is the Cherokee replacement. It's also going to be our first full hybrid powertrain, which I'm very excited about. We have seen many of our competitors, Honda, Toyota, do extremely well with full hybrid powertrains. I'm excited to see the first one come into our lineup in the biggest segment in the market. So that's great. and we'll have more coming. So I think there's a lot to look forward to towards the end of this year.
Doug Osborne & Nathan Denlon: If we take a step back and kind of think about a little bit more the next couple of years, there was a big strategic reset over the past couple of years when Carlos came in. There was record profitability also due to several market factors. But there was also the creation of Stellantis. We forget that sometimes. It seems not that long ago, actually, if you look at it. What of the initial premise of that marriage between PSA and FCA is still valid going forward?
Doug Osterman: I think a lot of it is valid, and you're right. It's not that long ago. I remember Carlos used to say, we're still a baby. We're four years old. We're still a baby. There's still lots to do, right? I think there's some really great things that Carlos developed within the culture in terms of like cost focus, right? And that cost culture is still very much a part of the organization. I think this movement to try and focus the product plan around these four multi-energy platforms is still... you know, in hindsight, a very good move, that we didn't try to move to these kind of BEV-dedicated platforms, but we have the flexibility of the multi-energy platforms to offer very competitive BEVs, but also ICE, mild hybrid, hybrid, PHEV, right? And that's been an effective strategy for us. So I think there are some really, you know, very positive things, you know, that have been a fundamental part of the core of the strategy that are still very valid and relevant today. Now, there are some things that are shifting, right? So when we look at the importance of regional management and the way that regions are kind of fracturing and moving away from each other and moving in different directions, right, with BEV penetration in the United States only at kind of 78% of the market, you know, EU ramping up BEV pretty substantially, I think the importance of you know local regional management and the empowerment of that regional management to jump on those issues be close to those issues be the core decision makers in those issues and the movement that and some of the adjustment that we've made in the last six months with John Elkins support I think you know I've been very important and I think we you know as always you need to adjust to the environment right.
Doug Osborne & Nathan Denlon: As you're discussing kind of the moving pieces over the past six to nine months, the original plan, if I remember, was a broad sense of double-digit margins and significantly higher revenues. Has that still been kind of the guiding framework for what you've been discussing amongst the boards in the past months, or is this kind of a time to reflect on this?
Doug Osterman: Well, I think we're seeing some shift there. Personally thing and obviously will you know Antonio? I'm sure will will come out with with his direction But my sense of things having worked with Antonio quite a bit Talked you know it sensibly to to our management team and the board is that maybe for a time period we got to singularly focused on margin right and and and Some of that was driven by the environment that we were in, right? We were in an environment of scarcity that kind of started with COVID and then a chip shortage and then a supply chain shortage. And so a lot of people were, you know, everybody was kind of taking price because we just couldn't build enough cars. And so naturally things shifted. But I think we shifted a bit too much. I think nowadays, from my perspective, I'd much rather see a company that operates kind of in the 6% to 8%, very healthy margin range, right? but is growing the top line, is growing the market share, and is generating a lot of cash. To me, that's where we need to be, right? And I think for the brands that we manage around the globe, that's probably a more sensible profitability target that will allow us to focus also on growing the top line. I think it's very important in a business that has significant capital investment and a significant fixed cost base that you need to continue to grow the top line, right? And so it is a bit of a shift.
Doug Osborne & Nathan Denlon: Beyond catching up to kind of, let's say, the almost artificial depression of your top line over the past couple of months to fix the inventory issue in the U.S., what would be some of the big ideas you'd call out and say, look, this is what you're really excited about to push the top line higher?
Doug Osterman: Well, one, I would say in Europe, we're well on that path. If you look at our market share fourth quarter or second half last year versus where we're running this year, we're up, as I said in the first quarter call, about 190 basis points, almost two full percentage points of market share. That's pretty significant. A lot of that on the back of some fantastic new product in the BNC segments. On the North America side, we're at a much earlier stage. We've stabilized, I would say, the retail share. We're starting to grow retail share. We have significantly better order intake from the dealers and a better relationship with the dealers. But we need the product to come in, and the product will take a little bit longer. But I'm very excited about a number of the products that we have coming. One, we need to get back into the kind of lower third of the price range of the full-size pickup segment. That's a piece that we kind of left when we stopped production of the old what we call the DS or Ram Classic Pickup. And we need, we've announced we're coming out with the Express, which is essentially a decontented version of the new pickup that I think will be at a very attractive price point. We'll still be able to make really good money off of it. And I think that's going to be great for our market share because if you look at our market share in that kind of lower third of the price range full-size pickup, OUR SHARE IS SIGNIFICANTLY LOWER THAN IT IS IN THE REST OF THE SEGMENT, SO IT'S A BIG OPPORTUNITY FOR US. I'M VERY EXCITED ABOUT THAT AND SOME OF THE OTHER THINGS THAT, YOU KNOW, TIM KANISKIS HAS PLANNED FOR THE RAM TRUCK. I DON'T WANT TO, YOU KNOW, RELEASE ALL OF HIS PLAN, BUT HE'S GOT SOME GREAT THINGS COMING IN A SEGMENT THAT, FRANKLY, MAKES A LOT OF MONEY FOR US, RIGHT? SO THAT'S VERY EXCITING. GETTING BACK INTO THE CHEROKEE REPLACEMENT, THE ARGEST SEGMENT IN THE U.S. MARKET. FIRST HEV FOR US, SUPER SIGHTING OPPORTUNITY. COMING IN A LITTLE BIT LONGER PERIOD OF TIME, CERTAINLY THE MID-SIZED PICKUP I THINK IS A GREAT OPPORTUNITY FOR US. COMPLETE WHITE SPACE FOR US. I THINK ALSO RIGHT NOW I'M DRIVING MYSELF THE CHARGER DAYTONA, WHICH IS AMAZING. BUT RIGHT NOW WE'RE ONLY OFFERING IT IN THE TWO-DOOR BEV. I CAN TELL YOU A TWO-DOOR BEV MARKET IN THE UNITED STATES IS NOT Not that big, even though it's a great product, right? So we need the four-door. We need the ICE versions. You know, we need to kind of feed the machine, you know, because there's a big, big fan base out there that's waiting for those products. So there's a lot of stuff that I'm very excited about. I think a lot of the, frankly, the market share return in the United States will be a product-driven story. And I'm excited to see us, you know, bring those out. But we need to execute, you know.
Doug Osborne & Nathan Denlon: You already touched a little bit on the EV share and compare that in Europe and the U.S. Give us a little bit more sense, how are you specifically tailoring your approach to those two markets? Because it's the same platform, it's basically the Stellantis medium-large frame. How does that work across the brands and the regions?
Doug Osterman: Yeah, I mean, the fact that they're multi-energy, right, if you look at the powertrain offering on those platforms in Europe, you see that we offer ICE, we offer mild hybrid, we offer PHEV and we offer BEV. And right now the BEVs have been very well received on the new BNC segment vehicles and we make money on BEVs in Europe so it's good to see. And of course the compliance challenge in Europe is much more significant because most of the manufacturers will need to get up into the teens likely as a percentage of mix in terms of BEV to be compliant. And so we plan to move from where we're currently at at about 13% to I would say probably closer to 18 plus percent mix of BEVs. And the new products, you know, the penetration that we're seeing in the ordering is higher than that. So that's very good to see that they're being so well received. But yeah, we'll produce globally over 500,000 BEVs. this year, most of it in Europe. And so we need to stay on the forefront of BEV technology. And we will, right? But in the United States, you know, a lot of the push will be more focused on hybrids. You know, the HEV, like I mentioned, bringing that out to a wider range of vehicles. I think we have the opportunity to get into some of the larger high horsepower powertrains, bring some of those back. that, one, are very profitable for us, but also are real drivers of the brand character. When you think about Dodge and the fan base that's out there, those are the powertrains that they love, right? And they drive the image of the brand. And so I think bringing some of those things back is going to be really exciting for us.
Doug Osborne & Nathan Denlon: You just mentioned that you're making money on the EVs. in Europe on the PEVs, is that variable profit, cross-profit, or EBIT?
Doug Osterman: Yeah, yeah, yeah. We're making gross profit on those. And so it's a good business for us. I mean, this is an oversimplification, but the challenge that you have in North America is that, in general, we haven't seen battery pricing coming down as quickly as everyone would like, right? And so the batteries in general are still fairly expensive. Well, when you're in the kind of ABC segments that we're in in Europe, you can put a large enough battery in those vehicles to get a nice range if you have good engineering, right? And still offer the vehicle at a price that people can afford and make a decent profit. When you get into the kind of DEF, like larger vehicles in the United States, the battery size to get a decent range becomes so big that it makes it very challenging to hit a price point that's affordable for people and still make a profit. And that's why I'm very excited in the United States about the fact that we're going to be the first ones offering this range extender technology, where you kind of have half the size battery, but then a powertrain that charges the battery. in the Ram pickup. We are going to be the first to launch that technology in the United States. I think we have a significant lead on our competition. That will have class-leading stats. It'll be able to tow 14,000 pounds. I mean, it's an unbelievable truck. Ignoring the powertrain, if you just look at the stats of the truck and don't even think about what's underneath the product, it's an amazing product that I think people will really be excited about. But it's a new technology, and it'll be interesting to see how well it does. I spent three years in China, and range extenders are all over the place and growing like mad. So, you know, it's interesting to see that they haven't been really introduced that much in kind of the West, in Europe or in the United States. But I think the Ram truck is going to be a very, you know, just perfect application of that technology.
Doug Osborne & Nathan Denlon: And if we think about kind of EV profitability in the U.S., would you say that volume or battery pricing is more important as a stepping stone to actually get to a positive GP?
Doug Osterman: Yes.
Doug Osborne & Nathan Denlon: Both. What will come first?
Doug Osterman: Good question. You know, the thing about EV adoption is, you know, and I've seen this, you know, you can look, whether you look at China or Europe or the US, is that it is complex. I mean, I place a lot of it on the, you know, the cost of the battery. But in reality, it's broader than that, right? Because if you don't have a good charging infrastructure or you don't have affordable electricity, right, cost of ownership, these things all make a big difference in consumer acceptance. Even within Europe, if you look at say, the difference in adoption rate between, say, Italy and France, right? I mean, these things have a big, big impact. And so I think for the United States, not only do we need, of course, battery prices to come down and the affordability of vehicles, but we need infrastructure, you need affordable electricity, all those things to kind of drive it up. So I think it's a combination.
Doug Osborne & Nathan Denlon: If I'd hand you a crystal ball and we go down 20 years, Is it possible to fully electrify the U.S. fleet, or do you think that technology will not catch up to really enable many or all of these large vehicles to be electric, and there will be some combination of, I don't know, PHEV and other technologies out there?
Doug Osterman: Having 20 years is a long time to predict. I'm not sure I would want to predict that, but... Look, I think it's all I think electrification will come even in the United States, you know, with the longer distances and everything else. I think, you know, it will continue to grow. But the pace, like I said, the pace is going to be not just the advancement of the technology, the battery, et cetera. The pace is going to be, you know, how committed are parties, including the government, to support it through. clean cheap energy through charging infrastructure, et cetera, because you need all those things really for consumers. In general, when we talk to consumers that own our BEVs, they really like them. They like the way they drive. They like the fact that a lot of them, especially in the United States, they charge at home, so they have a full charge every morning. You kind of have a full gas tank every morning, so to speak. They don't have to stop off somewhere and fuel up, for the most part, unless they're on a long trip. They don't have to deal with oil changes. There's a lot of positives, but those other things are a factor.
Doug Osborne & Nathan Denlon: You already touched on leap motor a little bit when we talked about Europe, and it's, of course, a big topic in the industry, what the Chinese OEMs in general are doing in China, but also outside of China. Yeah. Have there been any learnings already for you in working with Leap Motor, seeing what's happening, or bringing those cars to Europe that you've been able to feed back into your other brands?
Doug Osterman: Yeah, a tremendous amount. I think Leap is a very, very interesting partner for us, and I'm very excited about the future that we have with Leap. And we learn from them all the time. By the way, they learn a lot from us as well. But I think it's a very good relationship. But there's a lot of things that they fundamentally do very differently in terms of product development cycle, the rapid speed, the way they look at the vehicle from more of a electrical engineering type of perspective, the deep level of integration. I mean, we could spend weeks here going over this stuff, but I mean, there's a lot of interesting elements in working with a company like Leap, and I'm so impressed with the progress that they've made. When I started talking to them a couple years ago, just like a little over two years ago, They were selling, I don't know, 6,000 or 7,000 units a month in China, and now they're selling like 40,000 units a month. So it's really impressive, and I think we're really just scratching the surface with them. I think there's a much broader partnership set of interactions that can be developed down the road. But certainly we're off to a good start. We now have over 450 dealers in Europe supporting the Leap Motors brand. We sold about 6,000 units, I think, last year in Europe with a start in the late year, late in the year. And we'll probably sell 30 to 50,000 units in Europe of their vehicles this year. We're going to industrialize some of their products in our plants in Europe. So yeah, I think we're off to a very good start.
Doug Osborne & Nathan Denlon: You just mentioned something that's becoming a recurring theme when I'm talking to people about China and what makes China competition really different. It's this shorter development cycle that enables faster integration of innovations and that seems to be backed by that other point you mentioned, the vertical integration or a stronger integration across the vehicles. Not necessarily they do everything themselves, but there's a much greater control, it seems, in the design phase of the vehicle. Is that something the Western OEMs will have to get to?
Doug Osterman: I think there, yeah, I mean, there are a lot of advantages to developing that way. There are also, you know, there are a lot of things that they do in parallel that we do kind of in a linear fashion, the control over the software and not depending on trying to coordinate so many different partners on different modules. So there's a lot of I mean, it's hard to explain it all in five minutes. But I mean, it's, yeah. So I think it's, you know, but to answer your question, I think there are things that are going to be very useful for Stellantis to take away from that. And as I mentioned, there are some areas where we're helping them as well. But I think that there is a lot that we can gain from.
Doug Osborne & Nathan Denlon: On an industry level, do you think that this kind of iterative juxtaposed to the more linear waterfall model, do you think that the industry is going to switch eventually?
Doug Osterman: Yeah. I mean, I think we will – well, we are already adopting certain elements of that. We've done a pretty in-depth study in cooperation with them, you know, and we – I won't say we're going to adopt everything. There are some things that we still feel like we do a lot better, but like I said, there's a lot we can integrate and improve on in our own cycle.
Doug Osborne & Nathan Denlon: It also seems that kind of control over the software and the electronics architecture kind of wrestling that away from suppliers. is one central point. And, of course, with Stellar Brain, you've already kind of started on that path. And where are you right now? How far along are you in separating hardware from software in your vehicles?
Doug Osterman: I mean, yeah, I don't know if I'd characterize it as like separating completely hardware from software. But, you know, we are moving towards this centralized electrical architecture, Stellar Brain, We're making good progress on that. It still will involve support and interaction with a number of partners, of course. But controlling the software is a key point that you brought up and mentioned, right? Because right now that's a pain point, I think, in the industry, right? When you have so many different modules in the car where the software itself is owned by a third party, by a supplier, and you can't crack that open every time you wanna make an adjustment or add a feature. You need to work with them and then you get the, here's the cost, here's the timeline, here's where I can position you versus my other five customers, you're third in line, you gotta wait, right? So I think that kind of full control over especially key elements of the software is something that a lot of the industry will gravitate to over time.
Doug Osborne & Nathan Denlon: And is there a timeline in your mind when that comes to fruition in the first Stellantis car?
Doug Osterman: Oh, yeah, yeah, 26.
Doug Osborne & Nathan Denlon: Okay. Any specific model we need to watch out for?
Doug Osterman: Yeah, we're going to give more detail over time on that technology, but, yeah, you'll see it coming.
Doug Osborne & Nathan Denlon: And you recently had a little bit of a press release and some discussion around Stellantis Autodrive as well. Is that tied kind of to that release as well, or is that also available to other models?
Doug Osterman: I mean, it has its own kind of rollout as well. And, you know, it's interesting, the whole development of autonomy across the industry. And I think, you know, we've made a lot of advances in Level 2, Level 2+, Level 3, all kind of coming in. And I think over time you'll see those, you know, levels of autonomy become more and more standard. I think one of the questions that we're all struggling with is, you know, How differentiating is that technology going forward for people, or does it just become kind of a standard expectation of the customer? But yeah, we're making good advancements in those areas. I think for us, a lot of it is, can you deliver it at a very attractive cost to the customer?
Doug Osborne & Nathan Denlon: What would be the tech stack that supports that functionality, which of course translates into the cost?
Doug Osterman: Yeah, I mean, I'm not probably the right guy to get into all that tech stack, but, you know, we have a very, I think, good plan, you know, as these technologies roll out through the lineup. As you can imagine, a lot of it will be introduced initially on kind of the higher-end cars where those customers, you know, can afford it to pay for it, and then as it becomes more more standard, right? It eats its way down through the lineup, right? But yeah, all that's, you know, I think well underway.
Doug Osborne & Nathan Denlon: Maybe taking a step back and putting the CFO hat a little bit on again, how has your view on value creation evolved over the past nine months? You must have come into the role with a, you know, preconception of how are you going to tackle that part of the job? And maybe share with us How do you think about it coming in and how has that evolved over the past couple of months?
Doug Osterman: Yeah, I mean, I've been around the industry for most of my career, you know, so I, you know, it's not that, you know, that when I put on the CFO hat, I started thinking about value creation for the first time. But I think, you know, for me right now, there is really this kind of a deep value story within Stellantis, right? And a lot of it, will be in this product shift that we've been talking about. I think there are big opportunities in North America for us to bring back the share and the profitability. I think the shift to be not so singularly focused on margin, but be focused on a healthy margin, but with growing top line growing share. Fundamentally, I don't think many people want to invest in a company that's constantly shrinking. You need to grow the top line, you need to grow the share, and we need to generate cash at a higher conversion ratio than we have historically. I think that is all part of the value creation story at Stellantis. And we need to continue to perform the way we have performed in the third engine, right? I mean, South America is on a great track, still high margins, number one share leader. Middle East, we're on a great track, very strong margins, very good results in kind of five of the 55 countries, but lots of more opportunity. In the Middle East, you have a very young, growing population that loves our brands, our European brands. So I think we're very well positioned there. I think in China, our position with Leap Motors is very good. I think in China, the winners are likely going to be the Chinese. And Leap Motors, I think, is going to be one of those winners. And Europe, I think we're on a good path. But North America, clearly, we need to make the course adjustments that we talked about. And a lot of that, as I mentioned, will be two things, bringing back some of the products filling those product gaps, and widening the powertrain offer to have more market coverage.
Doug Osborne & Nathan Denlon: You just mentioned third engine, and I recognize we didn't talk about it too much. I think one of the biggest questions probably is how do you see the influx of Chinese capacity in those markets, and how do you think you're positioned against APYD or others, not necessarily on EV, but also on just plug-ins and the typical cars that are in favor in those markets?
Doug Osterman: Yeah, so it's a little bit different by market, but let's talk about South America, because that's a core one for us. South America, as you know, is a fairly protected market, and so it's not, you know, in some of the major countries like Brazil, it's not that easy to import vehicles in without paying significant, you know, tariffs. So, you know, and other countries in LATAM, you know, like Chile, it's a lot easier to import in. But some of the big most profitable pieces, not so easy. And that's why I think you see people like BYD localizing. My understanding is they just not that long ago bought one of the former Ford plants down there. But it's a very different proposition than Europe, I think, where you see the Chinese bringing in BEVs and leveraging kind of the deep experience that they have from a market that is so heavily BEV-oriented. and the supply chain that has scale on Bev in China. In Latam, you know, most of the markets are not Bev adoption markets, right? And they're going to need to localize. They'll be using a lot of the same local suppliers that we will. The cost base will be somewhat similar. Their experience, I think, in... you know, in the flex fuel power trains that really are the focus in LATAM that, you know, run on ethanol. And I don't know if that's a traditional strength of the Chinese. I can tell you it is a traditional strength of our team in South America, right? We have a very strong local team there, number one position for a long period of time, extremely experienced in those technologies. and constantly updating, developing, and improving those technologies, lots of interesting patents and things like that. And I don't think that's that easy to catch up with. I mean, I don't want to underestimate BYD, right? But I think it's a different game in South America. And so while we're very conscious of their efforts to get into the market and we're keeping a close eye on them, I think we're well positioned.
Doug Osborne & Nathan Denlon: And then in closing, what do you think or what do you see as the three most important things for Stellantis to do over the next 36 months? Maybe from the CFO position, what are the three things you want to absolutely make sure to get right over the next 36 months?
Doug Osterman: I think the product cadence we have is key to the next 36 months. And being able to launch those products on time with the right technology and the right cost level and the right quality is extremely important. So execution of the product plan, super important. Second thing, I think we need to continue to work on the cost. We now have these brand new multi-energy platforms. I think they're very impressive technology. But we need to taking, you know, kind of a page out of our own book and also, of course, something that our friends at LEAP Motors are very good at is we need to do a cost cycle, right, where you look at those new platforms and you say, okay, I did all this for capability and timing and quality and everything else. Now let's just look at them again for cost. There's big opportunities there. So we need to go through that cycle. and continue to work on that piece of it. And then I'd say the third thing is, you know, something that's near and dear to my heart, which is focusing on once we do get, you know, kind of this uptick and we're growing the top line and we're growing the profitability, to focus on cash conversion. Make sure that more of that generation of profit makes it into the coffers of cash.
Doug Osborne & Nathan Denlon: Excellent. Doug, thank you very much for taking time today. Thanks for having us. Absolutely. Doug Osborne, Nathan Denlon.
Doug Osterman: Thank you.
