Investing.com -- J.P. Morgan on Thursday downgraded Stellantis (BIT: STLAM) (NYSE: STLA) to Neutral from Overweight and nearly halved its price target to €6 from €10, saying the automaker still needs roughly 14 months before cost savings from cheaper component purchases feed through into new model launches slated for 2027-28.

The company’s U.S.-listed shares slipped 1.8% in premarket trading by 07:28 ET (11:28 GMT), while shares in Milan edged lower by 0.8%.

Analyst Jose Asumendi said that in the absence of labor reductions or drastic capacity cuts across Europe and North America, he sees "limited chances for STLA to make a rapid return across both regions."

"In Europe, we believe STLA is effectively running the business cash neutral, avoiding large restructuring cash outflows as the firm leverages its capacity across Chinese partners such as Leapmotor and DongFeng," he added.

Asumendi cut earnings estimates by an average of 30% across fiscal 2026 through 2028, reflecting the lack of major capacity cuts in Europe and North America that would have enabled a quicker margin recovery and stronger operating leverage as volumes rise. The new price target is based on 0.04 times EV/Sales and 7 times price-to-earnings.

The analyst flagged competitive pressure from Chinese automakers as a key catalyst for the downgrade. "Chinese OEMs are advancing, taking further market share in Europe," he wrote, while established rivals including Volkswagen and BMW are already in advanced talks with unions to adjust capacity.

Asumendi said he had hoped to see more evidence of capacity cuts from Stellantis following its capital markets day, but the company has instead opted to lean on its Chinese partners to utilize European plant capacity, a move that limits large-scale restructuring but leaves "some restructuring will be unavoidable."

J.P. Morgan is forecasting a slow second quarter, with its EBIT estimate coming in 12% below the Bloomberg consensus, and both European and North American operations still printing close to breakeven margins. The bank also flagged risk of further earnings downgrades tied to additional quality-related provisioning, particularly in North America, and to stronger competition in Brazil that has not yet been factored into its estimates.

While Asumendi forecasts positive free cash flow in fiscal 2027, which he said could support a dividend payment the following year, the analyst added he would prefer Stellantis rule out any dividend until returns improve in North America, especially given the looming market-share competition in Europe.