Stellantis N.V. (NYSE: STLA) stock is down over 2% after the announcement that chief executive officer (CEO) Carlos Tavares was resigning, effective immediately. The company says a search is ongoing, and a new CEO is expected to be announced in the first half of 2025. In the interim, an executive committee will run the parent company for brands such as Chrysler, Jeep, Fiat, and Peugeot.

However, investors know that Stellantis was a troubled stock before the announcement, down 43% in 2024. Even in a year where all the automotive stocks have been under pressure, this is a shockingly poor performance.  

The company has been suffering from declining sales and tough competition. Things seemed to come to a head for the automaker when it released its full-year 2024 guidance at the end of September. The company then guided for an adjusted operating margin between 5.5% and 7%.  

That was far lower than earlier estimates for double-digit operating margins. That may have highlighted an emerging difference between the board of directors and Tavares.  

Let the Rebuild Begin 

Many fans of professional sports teams understand the following dilemma. After spending heavily to improve a roster and (ideally) win a championship, your favorite team has old, expensive players. In most cases, that means a multi-year rebuilding process that starts by turning over a roster by getting younger—and cheaper. The demolition of a roster has to happen before the turnaround can begin. And as many fan bases know, this process may repeat itself several times without good leadership in place. 

I give you that example to simplify the situation with Stellantis. The company reported a record profit of approximately $19.7 billion in 2023, with an adjusted operating margin of 12.8%.  

Considering that Tavares had set a 12% operating margin goal, this was like winning a championship. And investors responded accordingly.  

However, the company has not been spared from the industry-wide problem of languishing inventory. With a few exceptions, many dealers struggle to move cars off their lots. Here’s why that’s a problem. Stellantis books revenue when a vehicle ships to a dealer. To be clear, the company is not alone in this practice, and it generally isn’t cause for concern. 

Until it is, and it’s a particularly acute problem for Stellantis. Tavares has demanded that dealers keep high retail prices to support the margins. However, having a high-priced inventory that consumers can’t afford and, in many cases, believe has quality problems is like that of a sports team with an aging, expensive roster.  

That's reflected in the company’s sales, which dropped 20% in its most recent quarter. The decline was across the board, with only the Fiat brand increasing sales.  

The Inventory Problem Doesn't Have a Quick Fix  

For Stellantis, the short-term solution is to significantly cut prices (and margins). Otherwise, the company will have to continue extending indefinite layoffs, which should begin as soon as January 5 at the company’s Toledo Assembly Complex. 

However, while discounts are starting to appear, the company will need assistance from the U.S. consumer. And that may not happen as soon as hoped. For starters, the Trump administration is threatening to place tariffs on automobiles built outside of the United States. Stellantis has many factories in low-cost countries such as Northern Africa and Mexico.  

And then there’s the fact that, even without tariffs, inflation is likely to remain above the Federal Reserve’s preferred 2% target and may even move higher. This means the company may be working through inventory issues for some time.  

Stellantis Stock Is Cheap But May Not Offer Great Value 

At about 5.4x forward earnings and a portfolio of strong brands, this could seem like a good time to consider STLA stock. That may be a mistake.  

The company doesn’t appear to be in danger of bankruptcy. However, the size of its portfolio and lack of differentiation are weighing on consumer perception. Plus, the emphasis on higher margins has priced some of its core consumers in Europe and the United States out of the market.  

Since the announcement of Tavares’ resignation, Citigroup Inc. (NYSE: C) and Barclays have reiterated their Hold rating on Stellantis stock.

That's why, until a new CEO is in place and the company has an established vision for its future, it’s hard to make a case to take a long position. And it appears that options traders are forecasting a stock price between $12 and $13.