Stellantis’ China deal maths may amplify US woe

Outnumbered. Stellantis’ plan to invest $1.6 billion in Chinese electric-car maker Zhejiang Leapmotor Techlogy could help $57 billion maker of Jeep and Citroen cars to speed up CEO Carlos Tavares’ green ambitions. But EV shortcut has two drawbacks. First, it does t come cheap. At HK$43.8 per share, deal for a 21% stake in Leapmotor values company at $7.5 billion, more than four times its total sales in 2022. That’s relatively rich; aver multiple for bigger peers Nio, Xpeng, Li Auto and BYD is around 2.6, LSEG data shows.

Second, handing a large sum to a Chinese EV competitor could draw scrutiny just as Tavares is navigating tense pay talks with United Auto Workers in U.S.: Stellantis can hardly be seen to skimp on salaries when it has money to splurge on investments in world’s second-largest ecomy, even as relations between Washington and Beijing remain sour. And pressure has intensified after rival Ford Motor on Wednesday agreed to a 25% w hike, a boost in retirement contributions, and elimination of lower pay tiers for certain workers. Facilitating globalisation of a competitor from People’s Republic could play poorly during negotiations. Chinese upstarts such as Leapmotor are an alarming new threat to U.S. auto industry, as Henry Ford’s great-grandson and current chair of eponymous company Bill Ford warned earlier this month.

Stellantis’ New York-listed shares fell more than 2% on Thursday after unveiling deal, and Leapmotor’s stock dropped more than 10% in Hong Kong. Tavares will have to drive hard to prove his new partnership can pay off in Europe and beyond.

Context News

Stellantis, owner of Jeep and Peugeot, said on Oct. 26 it was planning to invest 1.5 billion euros ($1.6 billion) to acquire a stake in China’s electric-vehicle maker Zhejiang Leapmotor Techlogy. Stellantis and General Motors were in intensive talks on Oct. 26 with United Auto Workers in an effort to end a six-week-old strike. Ford Motor and UAW union, which represents many of carmakers’ U.S. employees, said on Oct. 25 y had reached a tentative agreement on a new contract. Shares in Stellantis fell 2.2% after deal with Leapmotor was anunced on Oct. 26.