What do car industry investors get revved up about? Top of the range models, perhaps. Or a seemingly unassailable technological lead, especially in the transition to electric vehicles. Maybe a simple equity story, with a streamlined footprint and a noticeable dearth of political interference.

The strong performance of Stellantis, which reports results on Thursday, suggests that the answer is none of the above. The carmaker, born out of the 2020 merger between Italy’s FCA (Fiat Chrysler) and Groupe PSA (Peugeot Citroën), has raced well ahead. Its stock has risen almost 70 per cent in the past three years, outperforming rivals Renault, Volkswagen and BMW.

It looks an unlikely market darling. The European business focuses on mass market models. It has not rushed into the EV race with the enthusiasm of some rivals. And it is complex. The French government holds a 6 per cent stake and Italy constantly tugs at the driver’s sleeve to influence its direction.



So why the staggering acceleration? Investors like a good turnaround story. And Stellantis, post merger, has cleaned up its act. Carlos Tavares, who took over the combined group from his post at PSA, has wielded the axe to achieve top of the range operating margins, expected to come in at 12.5 per cent for 2023, according to Citi. That compares with 6.8 per cent at Volkswagen, on S&P Capital IQ estimates.

Being big also means that necessary investments, in new models and R&D, are less of a drag. Capex and R&D will come in at less than 7 per cent of sales, says Philippe Houchois at Jefferies. VW spends about twice that.

A lot could still go wrong. The transition to electric vehicles, although slower than forecast, will shrink its traditional market, not to mention any Chinese competition. Labour costs are rising, not least in North America. Plus, this year global vehicle sales should decline as the surge in pent-up post-coronavirus demand wanes. Profitability will be squeezed.

Even so, Stellantis has a strong balance sheet with some €30bn of net cash expected this year. That helps explain swirling — and denied — rumours of a Renault tie-up. It should generate €11bn of free cash flow after recurring investments, according to Bernstein. Stellantis has more road to run on.