Renault’s prospects for 2023 look poor with profits expected to halve. Shareholders might be in for an early boost though when the long-awaited deal to tidy up its alliance with Nissan finally emerges.
Halving profits is no big deal, as Europe’s big auto manufacturers are all expected to undergo a similar fate.
“We model that (Renault) auto profitability will halve in 2023, consistent with what we model for the other (manufacturers),” investment bank UBS said in a report.
Investment researcher Bernstein agrees Renault will face tough conditions but the model cycle will provide a boost.
“Next year will remain difficult (for Renault) given weakening demand and still rising costs. In 2024, Renault’s model cycle can provide a meaningful tailwind. However, our forecast remains significantly below consensus,” Bernstein said in a report.
Renault is currently launching the Austral, a compact SUV replacing the Kadjar, which is pledged to move upmarket and compete with the BMW X3, an ambition shared with its probable competitors like the Peugeot 3008 and Toyota RAV4.
Renault has big electric ambitions too, with plans to spin off its electric car-making, which now include the Megane E-Tech as well as the long-serving Renault Zoe. An electric Renault 5 is on the drawing board for launch in 2024, along with a revival of the classic little 4. Renault has said it will be building more than one million battery electric vehicles (BEV) a year by 2025.
As for the talks with Nissan, a new agreement to reform its long-standing alliance with Nissan, which also includes Mitsubishi, was expected in mid-December. This became late December and now has moved to early 2023.
Renault owns 43% of Nissan and the Japanese company owns 15% of Renault, without voting rights. France owns 15% of Renault.
Renault reportedly wants Nissan to invest in the electric vehicle spinoff, while Nissan wants Renault to sell off some of its 43% stake. Nissan officials are said to be concerned about the transfer of intellectual property. Another reported option suggested Renault could transfer enough shares it has in Nissan to a trust so that both companies owned 15% of each other.
Investors want the deal settled quickly because the alliance has been treading water since the demise of former chairman Carlos Ghosn.
Renault is anxious for a deal to kickstart its ambitious plans for reform. Not least, because the company was forced to dump its Russian business in 2022. Renault generated 10% of its revenue and around 12% of its operating profit margin in Russia in 2021.
CEO Luca De Meo wants to split Renault into five autonomous companies.
· Ampere – electric vehicles and their software.
· Power, including internal combustion engines (ICE) and hybrids, hydrogen. Project Horse with Geely of China for ICE and hybrids.
· Alpine electric sports cars.
· Mobilize – car sharing and mobility services with China’s Jiangling Motors.
· The Future is Neutral – recyling.
De Meo’s “Renaulution” has been updated to include raising operating profit margins to 8% by 2025, and to more than 10% in 2030, compared with 5% expected this year.
UBS said its scenario for the auto industry assumes a shift from under to oversupply, with sales flat in 2023.
“This means price/mix is likely to rapidly normalize to much lower levels. Renault, despite all its new product launches in the more profitable C-segment, is unlikely to be immune,” UBS said. The auto profit margin will fall to between 1 and 1.5%.
Bernstein has positive thoughts about the company plan.
“Renault has been in a difficult position, aggravated by the loss of its Russian business in 2022. Against the odds, the management team has delivered against an ambitious set of targets and now has set out an even more ambitious vision for the upcoming decade.”
“The new strategy will not affect Renault’s earnings in the next few years. Investors in Renault will need to weigh the downside risk to earnings in 2023 against potential cash-inflows from potential asset/Nissan sales,” the Bernstein report said.
Last week, Renault announced its chairman Jean-Dominique Senard, former CEO of Michelin who was brought in to stabilize the company in 2018 after the arrest of former chairman Ghosn, would serve another term.
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