Stellantis Is Finally About to Make the Critical Decision It Needs to Move Forward

Investors following a possible Stellantis (NYSE: STLA) turnaround likely know the automaker's plate is full. It has to transition into new leadership, repair relations with its dealership network and suppliers, regain market share in Europe with intensifying Chinese competition, and digest a massive $26 billion charge to scale back electric vehicle (EV) ambitions. It's also facing a massive decision about which brands to invest in to drive its global turnaround, and finally, we have a little insight into exactly how it plans to accomplish this.

Invest here, not there

Stellantis, which was formed in 2021 via a merger of Fiat Chrysler and PSA Group, combined a number of brands that investors frequently complained overlapped and weren't receiving the investment they needed to thrive. While the company lacked identity and thriving brands, its global sales languished and its valuation plunged compared to Detroit rivals.

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Some investors and analysts have suggested discontinuing brands to save capital and reduce inefficiencies, but the automaker is currently shying away from that approach. That said, Stellantis is making the necessary decision to focus on four core brands, according to multiple sources via Reuters.

Stellantis plans to allocate the bulk of its investment capital to Jeep, Ram, Peugeot, and Fiat, which says a lot about its primary focus. Those four brands will be crucial to driving its global turnaround and hopefully rewarding investors along for the ride.

Within those four brands is a very distinct Detroit flavor, through Jeep and Ram, which are also heavily developed with profit-hauling SUVs and full-size trucks. The other half of those four brands represents the European core, as well as its Italian-American past, and will shoulder more of the volume and manufacturing core.

Image source: Stellantis.

With the majority of its investment going into those four core brands, it will relegate the remainder of its 14-brand portfolio to more regional roles with less funding than previously, which isn't a bad thing. The lower-volume brands can focus on filling regional roles and take platforms or other technology driven by the core four.

What it all means

This seems like the exact right move for Stellantis to continue its momentum from the first-quarter net profit improvement and recent sales momentum. Stellantis posted a 12% jump in global shipments during the first quarter. This move funnels more investment to its core European and North American assets that will drive both higher margins, thanks to Jeep and Ram, as well as volume overseas through Peugeot and Fiat. Just as importantly, it doesn't discontinue any brands that not only serve regional roles, but could grow into larger roles as regions and markets evolve. For investors, this should be an optimistic sign heading into the company's new business strategy that will be unveiled on May 21.

Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool recommends General Motors and Stellantis. The Motley Fool has a disclosure policy.