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CEO Tavares' abrupt departure knocked Stellantis ( STLA ) shares

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Board worried about Tavares' focus on cost-cutting -source

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Company struggling with too much inventory, Chinese

competition

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Problems not easily fixed -analyst

By Giulio Piovaccari and Alessandro Parodi

MILAN, Dec 2 (Reuters) - Outgoing CEO Carlos Tavares

clashed with Stellantis' ( STLA ) board over his plans to quickly turn

around the ailing U.S. business by cutting costs, rather than

focusing on long-term strategy, investors and bankers familiar

with the matter said on Monday.

Shares in the Jeep, Fiat and Peugeot manufacturer slumped as

much as 10%, hitting their lowest since July 2022, as investors

worried about the vacuum left at the top of the world's No. 4

carmaker following Tavares' resignation on Sunday.

Stellantis ( STLA ) is struggling to get rid of

overcapacity and bloated inventory in its key North American

market, at a time when global demand remains sluggish and

competition from Chinese rivals, especially in electric

vehicles, is intensifying.

In addition to its U.S. travails, the company's focus on raising

prices among its mass-market marques has driven away

inflation-hit customers in its other important market,

Europe.

Stellantis ( STLA ) had said shortly after a shock profit warning in

September that Tavares would retire in early 2026, at the end of

his current term. The process to select a new CEO was initially

set to be completed by the final quarter of next year.

Interviews with half a dozen shareholders, bankers and

analysts show how quickly since then disagreements deepened

between Tavares - long one of the auto industry's most respected

executives - and the board over how to resolve the crisis.

A senior investment banker briefed on the matter said on

Monday that the board had grown concerned about Tavares'

strategy for turning things around.

In recent months, and with just over a year left of his

contract, the CEO had focused mainly on cutting costs, the

banker said. The board worried that was leading to quality

issues but also cramping the company's ability to develop and

design new models.

Customers and dealers were furious about Tavares' strategy,

the banker said.

Launches of some key models, like the new version of the

popular Peugeot 3008 mid-sized SUV and the budget Citroen C3

city car, with its electric version e-C3, have faced delays.

A source familiar with the matter told Reuters on Sunday that

tensions grew because the board felt Tavares was focused on

finding near-term solutions to save his reputation rather than

working in the best interests of the company.

Stellantis ( STLA ) declined to comment and Reuters could not reach

Tavares on Monday.

STICKING POINTS

Tavares' cost-cutting had hurt in particular his

relationship with U.S. dealers and the U.S. United Auto Workers

union, analysts said.

In a Sept. 10 letter to Tavares, Stellantis ( STLA ) national dealer

council president Kevin Farrish complained that the pursuit of

short-term profits meant "rapid degradation" of the Jeep, Dodge,

Ram and Chrysler brands, adding: "You created this problem".

The UAW has threatened to strike against the automaker over

delayed investments, prompting lawsuits from Stellantis ( STLA ) accusing

the union of breach of contract.

Another sticking point for investors was Tavares's hardline

approach to the European Union's upcoming tougher emissions

targets at a time of slowing EV sales, said Massimo Baggiani,

founder at Niche Asset Management and a Stellantis ( STLA ) shareholder.

It "frightened" investors and major shareholders, he said.

CEO Tavares repeatedly confirmed pledges by Stellantis ( STLA ) to meet

the EU goals and said last-minute changes or delays to the

regulation, as proposed by European auto lobby ACEA, were

unfair.

New rules known as Corporate Average Fuel Economy (CAFE)

from Jan. 1 will require around 21% of the firm's total sales

during 2025 to come from electric vehicles.

Should it miss the target, it will have to pay other

companies with lower emissions to pool emissions and reduce

their average CO2 emissions or pay a fine.

Stellantis' ( STLA ) current EV sales mix in the EU is around 12%.

Europe chief Jean-Philippe Imparato warned last month in an

interview with Italian newspaper Milan Finanza that fines could

be as much as 3 billion euros ($3.1 billion) if it did not

manage to comply.

Tavares' early exit despite his determination to turn things

around before 2026 shows how serious the problems at the group

are, Bernstein analyst Stephen Reitman said.

"It points to what we've said for a long time - that the

problems are very deep and they're not easily fixed now," he

said.

($1 = 0.9519 euros)