Stellantis: Acquiring 20% Stake in China’s Leapmotor for EUR 1.5 Billion; EUR 39 FVE Unchanged

No-moat-rated Stellantis STLAM announced that it has signed an agreement to acquire a 20% stake in Chinese battery electric vehicle maker Leapmotor for EUR 1.5 billion, subject to customary closing conditions and regulatory approvals. The company will fund the investment from cash on hand. As of June 30, the firm had cash and equivalents of EUR 49.0 billion on its balance sheet. Stellantis will have two seats on Leapmotor’s board and own a controlling 51% interest in a joint venture that will have sales and manufacturing exclusivity outside of China. Management believes regulatory approvals may take up to 10 months and JV shipments could begin in the second-half of 2024. However, management also expects to take delivery of Leapmotor shares before the end of 2023. Acquiring a EUR 1.5 billion stake in Leapmotor had a minimal impact on our EUR 39 fair value estimate. The 5-star-rated shares of Stellantis currently trade at a compelling 55% discount to our fair value.

Year-to-date, as of the end of September, Leapmotor was the fourth-largest new energy vehicle pure play in China by volume, having sold approximately 80,000 units. Along with Volkswagen taking a stake in Xpeng, we think that Stellantis’ investment is one of many to follow as consolidation of China NEV automakers is ripe with around 100 companies according to Bloomberg. Even so, we like Stellantis’ move as we forecast China battery electric vehicle sales volume to rise from nearly 5 million in 2022 to around 22 million in 2030. We also like that the JV will enable Stellantis to offer fully digitalized electric models, utilizing its global distribution network, in regions outside of China.