Stellantis' plug-in hybrids may payoff during EV slowdown

As electric vehicle makers Rivian (RIVN) and Lucid (LCID) see their stocks decline on lackluster earnings and production outlooks amid slowing EV demand, which mainline automaker is best positioned to capture the attention of prospective EV buyers?

Tom Narayan, RBC Capital Markets Lead Equity Analyst — Global Autos, joins Yahoo Finance Live to highlight why he believes Stellantis (STLA) — which owns Jeep, Dodge, and Chrysler — stands to gain the most from plug-in hybrid models while price pressures barrage consumer interest in EVs.

"Those names that have more dedicated architectures that can only make full electrics now are facing some problems, right, because all they can do is make bets. So if the demand for those slow, it's not like they can switch and pivot and make plug-in hybrids," Narayan explains. "That's probably one of the main reasons why we like a name like Stellantis. it looked like a mistake to a lot of people a few years ago, when they chose this approach. But, now they're looking like the smartest kids in the classroom."

Narayan also comments on Stellantis' pricing strategy geared toward American auto buyers.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video transcript

AKIKO FUJITA: Yeah, the differentiation there between slowing growth rate and declining sales certainly an important one.

You talk about this push towards more plug-in hybrids. At least that's what consumers are looking at. Does it ultimately come down, then, to a more diversified portfolio slash lineup? Is that why you like Stellantis?

TOM NARAYAN: Yes, exactly. So I would say Stellantis, Toyota notably, and, to a lesser extent, BMW are the carmakers that, early on, they chose to do a flexible architecture approach. What does that mean? On the same line that they make full electrics, they can also make ICEs and plug-in hybrids. So if there's more demand for ICEs and plug-in hybrids, they can just change and make more of those.

So that's really why it's benefited a name like a Stellantis, like a Toyota, like a BMW, and why we favor those. Those names that have more dedicated architectures that can only make full electrics now are facing some problems, right, because all they can do is make BEVs. So if the demand for those slow, it's not like they can switch and pivot and make plug-in hybrids.

So yeah, that's probably one of the main reasons why we like a name like Stellantis. It looked like a mistake maybe to a lot of people a few years ago when they chose this approach, but now they're looking like the smartest kids in the classroom.

AKIKO FUJITA: And so, Tom, of course we have to talk about some of the pricing strategies here, especially when you look at pure-play EVs. We've sort of almost saw this sort of race to the bottom a little bit with those price cuts. But when you're a Stellantis where it's part of your ecosystem, are you under pressure then to compete on that level, or can you afford to keep your prices higher, especially given you still have your ICE vehicles, which people would also perhaps like to see some more deals on?

TOM NARAYAN: Yeah, that's a great point. That was probably-- we just had, actually, the Stellantis management on the road with us a couple of days ago, and this was the number-one question they got is, Can you maintain these really high pricing? You know, and certainly some of this pricing probably has to come down. I mean, the pricing for them is up, like, something like 40% in the past three years alone.

But what we learned is that while pricing can come down, it doesn't necessarily mean that profitability suffers. The reason is right now, dealerships give a pretty high incentive amount. So even though the MSRP is very high, the incentive is also high, and the dealer kind of gets the credit for it.

So what Stellantis wants to do is negotiate better with their dealers so they can come out with a lower MSRP, a lower sticker price, and a lower incentive from the dealer as well. So I do expect pricing to come down.

But the other benefit Stellantis has is they're predominantly, in the US at least, it's Jeep and it's Ram. These are premium products, very sticky consumer base. They can sell a lot of plug-in hybrids there, which is where demand is. So I actually think they can hold on to price better than some of the other car makers who are more in more competitive spaces like crossovers and sedans.