Stellantis N.V. Stock: Dodge, Made In Italy (NYSE:STLA)

Mercedes, made in Alabama. BMW, made in South Carolina. MG, now a Chinese brand, wildly popular in Europe. Volvo, also a Chinese brand. Polestar, a very Swedish word, similar story to semi-sister company Volvo.

In the automotive industry, the last couple of decades have seen a lot of sacred cows being slaughtered. In 2023, it’s time to add another one to the pile: Dodge, now made in Italy.

As of 2022, the Dodge product portfolio had dwindled down to three nameplates: Challenger, Charger and Durango. Production of the Challenger (coupe) and Charger (sedan) are scheduled to wind down by the end of 2023 because the U.S. emissions regulations no longer support Dodge selling the thirstiest V8 versions of these vehicles into its largest market, the U.S.A. The Challenger and Charger have been manufactured in Canada in recent decades, along with the “similar under the skin” sedan, the Chrysler 300.

That left Dodge with only one nameplate, the Durango, essentially a longer version of the previous-generation Jeep Grand Cherokee (as it existed before 2021), made in Detroit, Michigan. Coincidentally, Chrysler will also be left with a single nameplate, the Pacifica minivan, made across the river in Windsor, Canada.

Both Dodge and Chrysler are part of the same company, sort of like so many other automotive brands — Audi, Porsche and Volkswagen are effectively the same company, for example. In this case, Stellantis (NYSE:STLA), which is a company headquartered in Europe but also owns the strong US-centric brands of RAM and Jeep.

Arriving this season to beef up the Dodge lineup, however, is a new nameplate, the Hornet. This is a compact SUV that will start just under $31,600 plus tax in the U.S. There are all sorts of things to say about the actual product, but let’s first noodle on the fact that this will be a Dodge made in Naples, Italy.

Does it matter where a car is made? It certainly shouldn’t. Jeep has been making cars in Italy that have been sold in the U.S. since 2014. Do U.S. consumers know, let alone care? They probably don’t, and definitely shouldn’t.

The Dodge Hornet is a sister vehicle to the Alfa Romeo Tonale, which is arriving in U.S. dealership around the same time, in that case late in the second quarter of 2023. As a result, the first thing we have to sort out are the differences between these two sister vehicles.

What’s similar? The bodies of the vehicles are essentially the same, with some massaging especially in terms of the clearly different front clip. The plug-in hybrid versions of the vehicle share the same powertrain. In this case, it’s a 1.3 liter engine up front, mated to a six-speed automatic. In the back, there is an electric motor, similar in principle to how Toyota implements all-wheel drive on many of its vehicles.

It is a setup that may be closest to the Toyota RAV4 Prime, with the main difference being that Toyota does not have a six-speed transmission. In my brief time behind the wheel of the Dodge Hornet PHEV (plug-in hybrid), which took place in March 2023, it did not feel as smooth in its power delivery as the Toyota, but I would need much more time for a more precise comparison.

The PHEV version of the Dodge Hornet starts around $41,600 — and the Alfa Romeo version around $3,000 more — but the Dodge version has a relatively bargain offering that I believe is the real story here. It is a regular gasoline engine with 286 horsepower and standard all-wheel drive that starts at a mere $31,590 including the mandatory delivery charge. And that is before any dealer discounts.

It was not long ago that $31,590 for almost anything on four wheels would have been considered anything but a bargain. Leaving aside the general issue of inflation, in which the price of the average new car in the U.S. market catapulted from around $30,000 to nearly $50,000 in record time, there are other things to consider here, with respect to the Dodge Hornet:

• All-wheel drive is standard.

• This much horsepower is generally not available in an all-wheel drive SUV with premium ambitions, in this price range.

For the past two years, I have had as my daily driver an SUV that is almost exactly the same size and shape as the Dodge Hornet. It starts at a lower price, doesn’t have all-wheel drive as standard, and has far fewer horsepower.

From this high-level conceptual comparison, I can inform you that the Dodge Hornet has an entirely different character. Horsepower, sound and steering are three senses that hit your senses the most. Dodge is not kidding when it says that they made the Hornet into something as close as possible to one of its legacy muscle cars.

That does not mean that the Dodge is an objectively better vehicle than its competition, or that it doesn’t have weaknesses. The first thing I noted when entering the Hornet was that the left foot has very little space. It is as if the wheelhouse is intruding, limiting what’s available for your left foot. If you are used to a generous space for your left foot, allowing you to stretch out your left leg, then this is extremely annoying to put it mildly.

Other cars such as most of what comes out of German automakers tend to not have this kind of left foot space problem. This is the kind of issue that is caused by the very genesis of the vehicle’s design geometry: The position of the driver’s seat in relation to the front wheelhouse.

Somewhat related to the left foot space problem is that I found the driver’s headroom to be constrained. I was unable to adjust the seat cushion’s rear half down low enough to keep my hair from brushing the ceiling, and I am of average height.

For me, the combined left foot space issue, and the limited headroom was the equivalent of an ill-fitting shoe. Anyone contemplating the Dodge Hornet should make sure that their body is shaped to be friendly with these constraints. It may just be perfect for someone with a body of a size and shape meaningfully different from mine.

One area where Dodge almost never messes up, is the cockpit controls, and this is no exception. Everything is easy to learn: A sensible balance between knobs, buttons and touchscreen controls.

The real reason someone would buy a Dodge Hornet is that it’s supposed to drive and feel like a Dodge. The good news here is that it delivers on this brand promise. The engine roar, the power and the steering all make for a distinct race car experience that no competitor in this segment comes close to matching, certainly not anywhere near this price.

The biggest hurdle to selling the Dodge Hornet may reside in its exterior design. It may feel like a Dodge to drive it, but it does not look the part.

That does not mean that the Dodge Hornet is a bad-looking car. It’s an okay-looking vehicle, perhaps even better than average. It just isn’t a Dodge Challenger, which is the brand’s signature design sort of like the Wrangler is Jeep’s signature design.

The problem with a brand that is so tied to a particular signature vehicle is that any almost departure from it risks leaving the consumer confused and disappointed from a brand identity standpoint. Of course, there is no way to make a compact SUV look like a Dodge Challenger, just like it was not possible for a Porsche Cayenne or Macan to look like a 911.

And yet, the Cayenne became Porsche’s genius move as it branched out dramatically beyond its signature 911. It had to be done. Dodge itself managed to do it with the Durango SUV, which has been so successful that the company has maintained its current generational design largely unchanged since it entered production in December 2010. That will soon be 13 full years, folks — not an automotive world record, but either South of the 1% mark or North of the 99% mark, depending on how you look at it. 13 years is at the extreme end of the bell curve.

It is impossible to say for sure whether Dodge can successfully make the Hornet into its “third avenue” of design, separate from the soon-to-expire Challenger/Charger and the evergreen Durango. Let’s just say that I am skeptical.

Stellantis portfolio and strategy

This is an example of how the Dodge parent company, Stellantis, is able to leverage its global network of development and factories, in order to plug gaps in its product portfolio, without adding material R&D or factory construction expense. This vehicle was going to be made as the Alfa Romeo Tonale no matter what.

Then, somewhere along the line a few years ago, it became apparent that Dodge was going to become a one-nameplate brand exiting 2023. Instead of taking five years and $4 billion (or more) to fire up a new development and factory to produce a new vehicle like this, it was able to “ride along” on the Alfa Romeo development with all the expensive parts paid for already. The mostly cosmetic and tuning modifications it took to transform the vehicle from an Alfa Romeo to a Dodge were the minor expenses compared to what a stand-alone effort would have been.

Stellantis is one of the automotive groups with the most brands and containing the widest span of the types of equipment, of any automaker in the world. Only The Volkswagen Group can match it in this regard, as it goes from Seat and Skoda all the way up to Bentley and Lamborghini.

Some investors view this brand diversity as a weakness. I think it is a strength, as long as automakers use common parts in an intelligent way: The common parts are mostly under the skin, with sufficiently meaningful differentiation on the surface. In the last couple of years, Kia and Hyundai have been particularly skilful in doing this well. Volkswagen and Stellantis are the other two auto groups to have executed well in their design departments.

Regulatory uncertainty and Stellantis’ flexibility

We can break down the automotive world into two parts:

• Western Europe, USA/Canada and China: This is where various electric car mandates are hitting hard in the next handful of years. The issue is whether there will be a consumer backlash, in turn leading to a political backlash. If so, development and production plans may need to be diverted yet again.
• Africa, Latin America, South Asia and The Middle East: Very little electric car mandates in these parts of the world, constituting at least half of the world’s population. Someone has to make cars for these peoples as well. Stellantis has a good position with brand names popular in these geographies, from Fiat to Jeep. With its factory footprint from the Americas to Europe, Stellantis is in a good position to remain a strong player for half the world, even if most other automakers were to trap themselves in electric-only car development.

Investment conclusion: Positive

Stellantis is one of the lowest-multiple automotive stock, and it happens to be profitable and have no balance sheet issues. There appears to be nothing positive built into its prospects. What I have pointed out in this article, is that its brand portfolio, in combination with its global R&D and factory footprint, has the ability to be a very capital-efficient machine that can respond to changing demand. Not all automakers have this ability. From that standpoint, Stellantis is relatively undervalued when compared to its automotive peer stocks. The automotive industry is a tough one, suffering from unusually burdensome regulatory requirements, but inside this constraint Stellantis has a few advantages in its structural setup.