Nomura starts Fiat Chrysler at Neutral amid Europe cost overhang

Euro coinsPhoto by Leslie Shaffer

Nomura started coverage of Fiat Chrysler Automobiles at Neutral with a target price of 19 euros.

First, the positives: “FCA’s pickup truck business in North America should remain profitable, benefiting from the ongoing recovery in the U.S. housing market, as well as the launch of the fully re-engineered Ram 1500 later this year. FCA has steadily built the Jeep brand into a strong, successful, and profitable franchise,” Nomura said in a note dated Wednesday.

The company is also about to pay off its industrial debt, giving it options to deploy extra cash, the investment bank said.

But on the flip side, the automaker is facing a “significant cost overhang” as carbon dioxide emissions standards become more strict, particularly in Europe, Nomura said. It noted Europe represents a third of sales volume.

“Given that the company has been slow in developing and commercializing electrified powertrains, we think that compliance with these tougher emissions standards would result in higher costs for FCA and compress margins, as it might not be able to fully pass on these cost increases to customers.,” it said.