By Giulio Piovaccari and Gilles Guillaume
MILAN/PARIS (Reuters) -Stellantis beat first-half profit forecasts thanks to strong pricing and high-margin vehicle sales, but rising production as a chip shortage eases could hit the auto industry's ability to raise prices in 2023, its top executive warned on Thursday.
The car industry has benefited from what chief executive Carlos Tavares called a "sweet spot" where a lack of core parts like semiconductor chips has hurt production, but high demand has allowed carmakers to charge more and raise profits despite high energy and raw material costs.
If production rises "the pricing power of the industry will be somehow reduced... which means you may have pressure on the margins," Tavares told reporters. "We don't want to be squeezed in a situation where transaction prices are under pressure and inflation costs are still there."
He added that steel prices were already falling because of fears of a global recession, but energy costs remained high.
Tavares said Stellantis' "stellar" order book was currently running at three times the rate the carmaker had seen before the global coronavirus pandemic hit in 2020.
He said the world No. 4 carmaker's first-half results put its breakeven point at 40% of revenues, "so we can bear any event, including a recession."
The group behind such brands as Alfa Romeo, Chrysler, Dodge, Jeep, Ram, Citroën, Peugeot, Fiat, Lancia, Maserati ad Opel, also saw high demand for electric vehicles (EVs) in the first half.
Initially seen as a laggard in the race to electrification, Stellantis this year rolled out an ambitious plan to double its annual revenues by 2030 and turn its range from traditional combustion engines to low-emission models.
"We are ahead of Tesla in Europe in electric vehicle sales, and not far from Volkswagen," Chief Financial Officer Richard Palmer said while presenting results, which showed a 44% operating income rise in the January-June period, on a pro-forma basis.
First-half adjusted earnings before interest and tax (EBIT) of 12.4 billion euros ($12.7 billion) beat analyst expectations of 9.42 billion euros in a Reuters poll and Stellantis' Milan-listed shares were up 3.4% in early afternoon trading.
"Results are clearly very strong and surprising," Banca Akros analyst Gabriele Gambarova said.
Rival Volkswagen confirmed its full-year outlook on Thursday but warned the war in Ukraine and threats to European energy supply loomed over the second half.
Stellantis CFO Palmer said it planned to cut gas consumption at its German facilities by between 50% to 90%.
Net pricing accounted for over 5.8 billion euros of the overall operating income in the first half, Stellantis said in its earnings presentation.
Foreign exchange also supported the results, with Palmer saying a stronger dollar contributed to the first half adjusted EBIT to the tune of around half a billion euros.
The carmaker's margin on adjusted EBIT rose to 14.1% from 11.4% a year earlier, with a double-digit result for all of the group's five regions and a record 18.1% in North America, where Stellantis made almost half of its sales in the first six months of 2022.
But CEO Tavares remained cautious about the semiconductor shortage that has affected the auto industry, saying production will not hit pre-pandemic levels before the end of 2023.
"It will be a long, steady slow recovery," he said.
Stellantis confirmed its full-year forecasts for a double digit operating income margin and for a positive cash flow.
$1 = 0.9784 euros)
(Reporting by Giulio Piovaccari and Gilles GuillaumeAdditional reporting by Nick Careyediting by Agnieszka Flak, Keith Weir and Tomasz Janowski)