Peugeot SA’s share price down, reduces its product line by almost a half in an attempt to reach 2% operating margin in four years, focuses on overseas expansion

Peugeot SA, the second-largest auto manufacturer by volume in Europe, revealed that it will cut about a half of its product catalogue. The company also plans to bring back sustainable profitability of its automotive unit after losing more than 7 billion euros in 2012 and 2013 by turning the DS vehicles manufactured by its Citroen division to a separate brand.

Peugeot SA will also try to become less dependent on the European car market, which is currently undergoing through some difficulties, by expanding its reach in South-east Asia and China.

Mr. Carlos Tavares, who is the current Chief Executive Officer of Peugeot SA, made a strategic review today. He explained that the operating margin of the automotive division of the company is expected to amount to 2% of the company’s overall sales by 2018. According to the Peugeot’s expectations, the figure would rise to 5% in the period between 2019 and 2023.

As reported by the Wall Street Journal, Chief Executive Officer Tavares said in its strategic review: “The group needs to develop a real profit-driven culture and a global approach in order to return to profit more quickly. Pursuing the cultural change already under way at PSA Peugeot Citroën is an important prerequisite for meeting the preceding four objectives.” Mr. Tavares also said for Bloomberg: “I am committed to accelerating the group’s recovery by channeling all of our teams’ creative potential so that we can quickly get back on the road to profit.”

Mr. Carlos Tavares took the helm at the end of March 2014 after the company posted cumulative net losses that surpassed 7.5 billion euros (10.4 billion dollars) in the past two and a half years. The current Chief Executive Officer is expected to start a reorganization of the company, associated with narrowing the product line of Peugeot SA from 45 to 26 vehicles, as well as a shifting the company’s focus to overseas markets.

Peugeot SA made an official statement today, which was cited by Bloomberg: “The group will continue to reposition the three brands, while clarifying their lineups.” The company also explained that reducing the models range will provide it with the opportunity to “improve market coverage and improve margins by targeting the most profitable segments”.

Peugeot SA fell by 3.76% on Friday and closed the session at 13.26 euros per share, marking a one-year change of +134.98%. The 22 analysts offering 12-month price targets for Peugeot SA have a median target of 10.25, with a high estimate of 18.00 and a low estimate of 5.50. The median estimate represents a -25.13% decrease from the last price of 13.69.