Qualitative and quantitative information on financial risk

12 Months Ended

Dec. 31, 2024

Qualitative and quantitative information on financial risks


32.	Qualitative and quantitative information on financial risks

The Company is exposed to the following financial risks connected with its operations:

•credit risk, principally arising from its normal commercial relations with final customers and dealers, and its

financing activities;

•liquidity risk, with particular reference to the availability of funds and access to the credit market and to

financial instruments in general; and

•financial market risk (primarily relating to exchange rates, interest rates and commodity prices), since the

Company operates at an international level in different currencies, uses financial instruments which generate

interest and is exposed to the risk of changes in the price of certain commodities which are used in the

production processes.

These risks could significantly affect the Company’s financial position and results and for this reason, the Company

systematically identifies and monitors these risks in order to detect potential negative effects in advance and takes the

necessary actions to mitigate them, primarily through its operating and financing activities and if required, through the use of

derivative financial instruments in accordance with established risk management policies.

Financial instruments held by the funds that manage the Company’s pension plan assets are not included in this

analysis (refer to Note 20, Employee benefits liabilities for additional information).

The following section provides qualitative and quantitative disclosures on the effect that these risks could have upon

the Company. The quantitative data reported in the following does not have any predictive value, in particular the sensitivity

analysis on finance market risks does not reflect the complexity of the market or the reaction which may result from any

changes that were assumed to take place.

Credit risk

Overall, the credit risk regarding the Company’s trade receivables and receivables from financing activities is

concentrated mainly in North America, Enlarged Europe and South America.

The maximum credit risk to which the Company is potentially exposed at December 31, 2024 is represented by the

carrying amounts of financial assets in the financial statements discussed in Note 16, Trade receivables, other assets, prepaid

expenses and Tax receivables and the nominal value of the guarantees provided on liabilities and commitments to third

parties discussed in Note 27, Guarantees granted, commitments and contingent liabilities.

In addition, the Company is exposed to credit risk in relation to the investment of cash and to transactions with

derivatives counterparties, as disclosed in Note 17, Derivative financial and operating assets and liabilities and in the Note

18, Cash and cash equivalents.

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each counterparty.

The Company monitors these exposures and established credit lines with single or homogeneous categories of counterparties.

Dealers and final customers for which the Company provides financing are subject to specific assessments of their

creditworthiness under a detailed scoring system. To mitigate this risk, the Company could obtain financial and non-financial

guarantees. These guarantees are further strengthened where possible by reserve of title clauses on financed vehicle sales to

the sales network made by the Company financial service companies and on vehicles assigned under finance and operating

lease agreements.

For further information regarding the exposure to credit risk and ECLs of Trade receivables, other receivables and

financial receivables at December 31, 2024 and 2023, refer to Note 16, Trade receivables, other assets, prepaid expenses and

tax receivables.

The Company differentiates Cash investments with primary bank counterparties and high rated liquid financial

instruments. The investments are actively managed and constantly monitored, in compliance with policies that establish

limits of concentration and duration, taking into account the creditworthiness of the counterparties and of the various

countries in which the cash is invested. The policies also define limits in the operations with Derivatives counterparties. Even

though the Company’s current securities and Cash and cash equivalents consist of balances spread across various primary

national and international banking institutions and money market funds that were measured at fair value, there was no

exposure to sovereign debt securities at December 31, 2024 and 2023 which could lead to significant risk of repayment.

Liquidity risk

Liquidity risk represents the risk the Company is unable to obtain the funds needed to carry out its operations and

meet its obligations. Any actual or perceived limitations on the Company’s liquidity could affect the ability of counterparties

to do business with the Company or may require additional amounts of cash and cash equivalents to be allocated as collateral

for outstanding obligations.

The continuation of challenging economic conditions in the markets in which the Company operates and the

uncertainties that characterize the financial markets, necessitate special attention to the management of liquidity risk. In that

sense, measures taken to generate funds through operations and to maintain a conservative level of available liquidity are

important factors for ensuring operational flexibility and addressing strategic challenges over the next few years.

The main factors that determined the Company’s liquidity situation are the funds generated by or used in operating

and investing activities, the debt lending period and its renewal features or the liquidity of the funds employed and market

terms and conditions.

The Company adopted a series of policies and procedures whose purpose was to optimize the management of funds

and to reduce liquidity risk as follows:

•centralizing the management of receipts and payments where it may be economical in the context of the local

civil, currency and fiscal regulations of the countries in which the Company was present;

•maintaining a conservative level of available liquidity;

•diversifying the means by which funds were obtained and maintaining a continuous and active presence in the

capital markets;

•obtaining adequate credit lines; and

•monitoring future liquidity on the basis of business planning.

The Company manages liquidity risk by monitoring cash flows and keeping an adequate level of funds at its

disposal. The operating cash management and liquidity investment of the Company are centrally coordinated in the

Company’s treasury companies, with the objective of ensuring effective and efficient management of the Company’s funds.

These entities obtain funds in the financial markets from various funding sources.

Certain notes issued by the Company and its treasury subsidiaries include covenants which could be affected by

circumstances related to certain subsidiaries; in particular, there are cross-default clauses which could accelerate repayments

in the event that such subsidiaries fail to pay certain of their debt obligations.

Refer to Note 16, Trade receivables, other assets, prepaid expenses and Tax receivables, Note 24, Other liabilities

and Note 22, Debt for additional information on the repayment structure of the Company’s financial assets and liabilities.

Refer to Note 17, Derivative financial and operating assets and liabilities for additional information on the repayment

structure of derivative financial instruments.

Financial market risks

Due to the nature of the Company’s business, the Company is exposed to a variety of market risks, primarily foreign

currency exchange rate risk, interest rate risk and commodity price risk.

The Company’s exposure to foreign currency exchange rate risk arises both in connection with the geographical

distribution of the Company’s industrial activities compared to the markets in which it sells its products, and in relation to the

use of external borrowing denominated in foreign currencies.

The Company’s exposure to interest rate risk arises from the need to fund industrial and financial operating activities

and the necessity to invest surplus funds. Changes in market interest rates could have the effect of either increasing or

decreasing the Company’s Net profit, thereby indirectly affecting the costs and returns of financing and investing

transactions.

The Company’s exposure to commodity price risk arises from the risk of changes in the price of certain raw

materials (primarily base metals, commodities used in electric vehicle and PGM - platinum, palladium and rhodium) and

energy used in production. Changes in the price of raw materials could have a significant effect on the Company’s results by

indirectly affecting costs and product margins.

These risks could significantly affect the Company’s financial position and results and for this reason, these risks

were systematically identified and monitored, in order to detect potential negative effects in advance and take the necessary

actions to mitigate them, primarily through its operating and financing activities and if required, through the use of derivative

financial instruments in accordance with its established risk management policies.

The Company’s policy permits derivatives to be used only for managing the exposure to fluctuations in foreign

currency exchange rates and interest rates as well as commodities prices connected with future cash flows and assets and

liabilities.

The Company utilizes derivative financial instruments designated as fair value hedges mainly to hedge:

•the foreign currency exchange rate risk on financial instruments denominated in foreign currency; and

•the interest rate risk on fixed rate loans, bonds and borrowings.

The instruments used for these hedges are mainly foreign currency forward contracts, interest rate swaps and

combined interest rate and foreign currency financial instruments.

The Company uses derivative financial instruments as cash flow hedges for the purpose of pre-determining:

•the exchange rate at which forecasted transactions denominated in foreign currencies would be accounted for;

•the interest paid on borrowings, both to match the fixed interest received on loans (customer financing activity),

and to achieve a targeted mix of floating versus fixed rate funding structured loans; and

•the price of certain commodities and components.

The foreign currency exchange rate exposure on forecasted commercial flows is hedged by foreign currency swaps,

forward contracts and foreign currency options. Interest rate exposures are usually hedged by interest rate swaps and, in

limited cases, by forward rate agreements. Exposure to changes in the price of commodities is generally hedged by using

commodity swaps and commodity options. Counterparties to these agreements are major financial institutions.

Refer to Note 17, Derivative financial and operating assets and liabilities for additional information on the fair

value of derivative financial instruments held at the balance sheet date.

Quantitative information on foreign currency exchange rate risk

The Company is exposed to risk resulting from changes in foreign currency exchange rates, which could affect its

earnings and equity. Where a Stellantis company incurred costs in a currency different from that of its revenues, any change

in exchange rates could affect the operating results of that company; the principal exchange rates to which the Company is

exposed are:

•EUR/GBP, relating to sales in the UK of vehicles produced in the Euro zone;

•CNY and JPY in relation to costs paid to Chinese and Japanese suppliers net of sales in China and Japan

respectively originating from European and North America entities;

•U.S.$/CAD and U.S.$/MXP, primarily relating to sales in Canada and Mexico of produced vehicles, net of local

cost and import in U.S. of Canadian produced vehicles;

•EUR/U.S.$, relating to sales and purchases (mainly linked to commodity) in U.S.$ made by European entities

and to sales and purchases in Euro made by U.S. entities;

•TRY and PLN, in relation to sales in Turkish and Poland markets, net of manufacturing costs incurred in

Turkey and Poland; and

•U.S.$/BRL and EUR/BRL, relating to Brazilian manufacturing operations and the related import and export

flows.

The Company’s policy is to use derivative financial instruments to hedge a percentage of certain exposures subject

to foreign currency exchange rate risk for the upcoming twenty-four months (including such risk before or beyond that date

where it is deemed appropriate in relation to the characteristics of the business) and to hedge the exposure resulting from firm

commitments unless not deemed appropriate.

The Stellantis entities could have trade receivables or payables denominated in a currency different from their

respective functional currency. In addition, in a limited number of cases, it could be convenient from an economic point of

view, or it could be required under local market conditions, for the Stellantis entities to obtain financing or invest funds in a

currency different from their respective functional currency, e.g. Argentinian industrial companies (with U.S.$ as functional

currency) invest a significant amount of cash denominated in Argentine Pesos. Changes in exchange rates could result in

exchange gains or losses arising from these situations. The Company’s policy is to hedge, whenever deemed appropriate, the

exposure resulting from receivables, payables, cash and securities denominated in foreign currencies different from the

respective Stellantis entity’s functional currency.

Certain of the Stellantis entities are located in countries which are outside of the Eurozone, primarily the U.S.,

Brazil, Canada, Poland, Serbia, Turkey, Mexico, Argentina, India and China. As the Company's reporting currency is the

Euro, the income statements of those entities that have a reporting currency other than the Euro are translated into Euro using

the average exchange rate for the period, except for entities that operate in hyperinflationary economies (Turkey and

Argentina) for which the income statements are translated into Euro using the spot rate at the end of the period. In addition,

the assets and liabilities of those consolidated entities are translated into Euro at the period-end foreign exchange rate. The

effects of these changes in foreign exchange rates are recognized directly in the Cumulative translation adjustments reserve

included in Other comprehensive income. Changes in exchange rates could lead to effects on the translated balances of

revenues, costs and assets and liabilities reported in Euro, even when corresponding items are unchanged in the respective

local currency of these entities.

The Company monitors its principal exposure to conversion exchange risk and, in certain circumstances, enters into

derivatives for the purpose of hedging the specific risk.

The potential loss in fair value of derivative financial instruments held for foreign currency exchange rate risk

management (currency swaps/forwards) at December 31, 2024 resulting from a 10 percent change in the exchange rates

would have been approximately €752 million in the Other comprehensive income (mainly driven by the foreign exchange

hedges related to the sales in GBP) and €291 million on Consolidated Income Statement.

This analysis assumes that a hypothetical, unfavorable 10 percent change in exchange rates as at year-end is applied

in the measurement of the fair value of derivative financial instruments.

Receivables, payables and future trade flows whose hedging transactions have been analyzed were not included in

this analysis. It is reasonable to assume that changes in market exchange rates would produce the opposite effect, of an equal

or greater amount, on the underlying transactions that have been hedged.

Quantitative information on interest rate risk

The manufacturing companies and treasuries of the Company make use of external borrowings and invest in

monetary and financial market instruments. In addition, the Stellantis entities sell receivables resulting from their trading

activities on a continuing basis. Changes in market interest rates could affect the cost of the various forms of financing,

including the sale of receivables, or the return on investments and the employment of funds, thus negatively impacting the net

financial expenses incurred by the Company.

In addition, the financial services companies provide loans (mainly to customers and dealers), financing themselves

using various forms of direct debt or asset-backed financing (e.g. factoring of receivables or securitizations). Where the

characteristics of the variability of the interest rate applied to loans granted differ from those of the variability of the cost of

the financing obtained, changes in the current level of interest rates could affect the operating result of those entities and the

Company as a whole.

In order to manage these risks, the Company uses interest rate derivative financial instruments, mainly interest rate

swaps and forward rate agreements, when available in the market, with the objective of mitigating, under economically

acceptable conditions, the potential variability of interest rates on the Company's Net profit.

In assessing the potential impact of changes in interest rates, the Company segregated fixed rate financial

instruments (for which the impact was assessed in terms of fair value) from floating rate and short term financial instruments

(for which the impact was assessed in terms of cash flows).

The fixed rate financial instruments used by the Company consisted principally of part of the portfolio of the

financial services companies (primarily customer financing and financial leases) and part of debt (including subsidized loans

and notes). These instruments are measured at amortized cost and changes in market interest rates for these instruments do

not affect Net profit or Equity. Certain financial securities are accounted for at FVPL. The impact of an unfavorable 50 basis

points change in interest rate levels would result in increase in financial expenses of €12 million due to the change in fair

values of these securities.

The Company entered in certain derivatives in order to manage interest rate risk on underlying debt exposures. An

unfavorable 50 basis points change in interest rates level applied to the interest rate derivatives outstanding at December 31,

2024 would have an impact of €89 million on financial expense. It is expected that this impact will be offset by an equivalent

gain on the underlying debt exposures.

In addition, financial services companies use derivatives in order to hedge the interest rate risk arising from the

mismatch between financial receivables and related funding. A 50 basis points change in interest rates level applied to the

interest rate derivatives outstanding at December 31, 2024 would have a negative impact of €33 million in Other

comprehensive income.

Floating rate financial instruments consisted principally of cash and cash equivalents, loans provided by the financial

services companies to the sales network and part of debt. The effect of the sale of receivables was also considered in the

sensitivity analysis.

A hypothetical 50 basis points change in short-term interest rates at December 31, 2024, applied to floating rate or

short term maturity financial assets and liabilities, operations for the sale of receivables and derivative financial instruments,

would result in increased net financial expenses, on an annual basis, of approximately €118 million.

This analysis is based on the assumption that there is an unfavorable change of 50 basis points of interest rate levels

across homogeneous categories. A homogeneous category is defined on the basis of the currency in which the financial assets

and liabilities are denominated. In addition, the sensitivity analysis applied to floating rate financial instruments assumes that

cash and cash equivalents and other short-term financial assets and liabilities which expire during the projected 12-month

period will be renewed or reinvested in similar instruments, that will reflect the hypothetical 50 basis points change in short-

term interest rates.

Quantitative information on commodity price risk

The Company, in addition to supply agreements that provide protections to the price increases and supply shortages,

entered into derivative contracts for certain commodities to hedge its exposure to commodity price risk associated with

buying raw materials and energy used in its normal operations, primarily base metals and PGM (platinum, palladium and

rhodium).

In connection with the commodity price derivative contracts outstanding at December 31, 2024, a hypothetical 10

percent change in the price of the commodities at that date would have caused a negative impact on the Other comprehensive

income of €290 million. Future trade flows whose hedging transactions have been analyzed were not considered in this

analysis. It is reasonable to assume that changes in commodity prices would produce the opposite effect, of an equal or

greater amount, on the underlying transactions that have been hedged.