Moody's downgrades Stellantis to Baa3 from Baa2, outlook stable

Investing.com -- Moody's Ratings has downgraded Stellantis N.V.'s long-term issuer rating to Baa3 from Baa2, citing significant downward revisions in the automaker's profitability and cash flow projections.

The rating agency also lowered Stellantis' senior unsecured instrument ratings, backed senior unsecured instrument ratings, and other short-term rating to (P)P-3 from (P)P-2. The outlook on all ratings has been changed to stable from negative.

According to Moody's, the downgrade follows Stellantis' preliminary 2025 results, which indicated lower-than-expected profitability and cash flow for 2025 and beyond. The rating agency expects the company to continue generating negative Moody's-adjusted free cash flow in 2026, with margin recovery taking longer than anticipated.

Stellantis will book charges of approximately €22.2 billion related to changes in its product roadmap, battery supply chain, and warranty provision estimations. About €6.5 billion of these charges will result in additional cash outflows, with around €2.0 billion expected in 2026.

Moody's projects Stellantis' adjusted free cash flow will remain negative at approximately -€2.5 billion in 2026, marking the third consecutive year of negative cash flow. The company reported highly negative free cash flow of -€9.2 billion in 2024, with 2025 expected to be close to -€8 billion.

The rating agency estimates Stellantis now operates with a Moody's-adjusted industrial net debt position exceeding €6 billion, compared to a net cash position of around €13 billion at the end of 2023.

Moody's expects Stellantis' adjusted EBIT margin to be around 1% as earnings will reflect approximately €1.6 billion in tariff expenses and high warranty costs. Meaningful profitability improvements are only expected in the second half of 2026.

To mitigate the impact of continued cash outflows, Stellantis has obtained authorization from its supervisory board to issue up to €5.0 billion of hybrid notes. The company has also committed to paying no dividends in 2026.

Despite recent challenges, Stellantis' rating remains supported by its scale as one of the world's largest automotive manufacturers, diverse brand portfolio, balanced exposure to North American and European markets, and strong liquidity position.

At the end of December 2025, Stellantis had an estimated €29 billion in cash and cash equivalents, €4 billion in marketable securities, and access to €16.6 billion of undrawn committed credit lines.

The stable outlook reflects Moody's expectation that Stellantis will improve profitability and return to positive adjusted free cash flow generation within the next 12-18 months, supported by growth in unit sales from recently launched products.

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