Renault Tinkers With Strategic Plan As Talks About Nissan Alliance Continue

You need nerves of steel and enhanced powers of concentration to be a Renault shareholder as new ideas come thick and fast.

A couple of years ago Renault CEO Luca de Meo launched his “Renaulution”, a long-term strategic plan to switch away from piling ‘em high and selling ‘em cheap. That plan, which favors profitable sales at the expense of volume, is still a work in progress, recently updated. And investors have watched as talks about the future of the alliance with Nissan continue.

Meanwhile, de Meo launched his latest wheeze with a plan to split the company five-ways, which allegedly will make for more efficiency and increase shareholder value. Views on the merits of the split are mixed, but Moody’s Investors Service has reported approvingly on the prospects for Renault.

Renault shares have been slowly and occasionally erratically recovering from the debacle after Russia invaded Ukraine and its shares dived more than 40%. Renault generated 10% of its revenue and around 12% of its operating margin in Russia in 2021.

The shares have recovered much of the loss, boosted by hopes talks will succeed aimed at finally sorting out the long-term alliance with Nissan of Japan. Renault owns 43% of Nissan and the Japanese company owns 15% of Renault, without voting rights. France owns 15% of Renault. The talks have produced much talk but no action so far.

After considering the updated Renaulution plan, Moody’s raised its outlook to “stable” from “negative”.

“(this) reflects Renault’s improved profitability in the first half of 2022, and the expectations of further improvements driven by the execution of the strategic plan Renaulution,” said Moody’s analyst Matthias Heck.

“(the raised rating) is based on the expectation Renault’s credit metrics will improve to comfortable levels required for the current rating category in 2023, notwithstanding the increasingly challenging macroeconomic environment and the execution risks linked to the new strategic plan,” Heck said.

Under the revamped plan, Renault plans to raise operating profit margins to 8% by 2025, and to more than 10% in 2030, compared with 5% expected this year. It will reinstate dividends from next year after a three-year absence. Operating cash flow will be more than €2 billion between 2023 and 2025, up from over €1.5 billion in 2022.

De Meo also plans to split Renault into five “autonomous” companies to boost profitability and increase the stock market valuation of Renault overall and therefore investor value.

The 5 units are

· Ampere, which will be strictly electric vehicles and their software.

· Power, including Renault and subsidiary Dacia’s internal combustion engines (ICE) and hybrids, as well as hydrogen. Project Horse will be a 50/50 venture with Geely of China to handle production of ICE and hybrids as they gradually yield the market to battery electric vehicles (BEV).

· Alpine will be for electric sports cars.

· Mobilize will handle car sharing and mobility services in a joint venture with China’s Jiangling Motors.

· The Future is Neutral will research the reuse of materials and recyling of batteries

French automotive consultancy Inovev said Renault seems to be focussing on the issues and partners of the future and is rebuilding accordingly, setting “very athletic” goals.

Berenberg Bank of Hamburg said the 5-way split will allow enhanced operational flexibility but may raise concerns about governance and valuation.

“This should help Renault to retain much-needed agility in a fast-moving environment as well as to continue operating an asset-light model,” the investment bank said in a report.

“That said, the increased number of layers within the Renault group structure could make governance more complex. This may initially trap some of the value unleashed by a more transparent reporting structure as well as a separate listing of the EV business,” Berenberg said.

Investment bank UBS liked the basics of the plan, including the ambition to put value over volume, but said Renault has never delivered such profitability, while the industry’s recent improving bottom line has relied on the strong price mix unlikely to be continued as it shifts from under-supply to excess-supply.

Moody’s also pointed to possible problems involving the more complicated governance structure but liked the long-term profit targets.

“The increased targets illustrate that Renault is making faster progress in the execution of the strategic plan than initially expected, driven by continued efficiency measures, positive pricing effects and the launch of new models,” Moody’s Heck said in a report.

The report also pointed to the elephant in the room; what does the future hold for the alliance with Nissan, which Moody’s believes has “substantial synergy potential”.

Talks between Renault and Nissan, and the junior partner Mitsubishi, about the alliance’s future have recently resumed, but apart from warm words about how friendly the negotiations are, nothing of substance has emerged.

One option reported by Automotive News Europe suggested Renault could transfer enough shares it has in Nissan to a trust so that both companies owned 15% in each other.

The talks continue.