Renault shows financial resilience as industry negatives rise

Renault pleased investors with its first quarter financial results, the first major European manufacturer to report, as the future of its Russian subsidiary and the alliance with Nissan remain in jeopardy.

Renault shares jumped more than 2% on Friday as investors appeared reassured by the company’s reiteration of its 2022 financial outlook made in March that the operating margin would be around 3%. Renault shares plunged more than 40% after Russia invaded Ukraine in February and recovered about a third of that after hitting a low in early March. On Friday, the STOXX Euro 600 Auto stock index fell 1.5%, making Renault’s move on the day comparatively more impressive.

Renault’s first-quarter revenue fell 2.7%, with sales of its own brand, Dacia and Lada, to 9.75 billion euros ($10.6 billion). Excluding AvtoVAZ and Renault Russia, sales fell 1.1% to 8.9 billion euros ($9.6 billion).

French companies reveal their profits every semester and only declare their sales after 3 and 9 months.

Investment researcher Jefferies said Renault’s performance was reassuring with non-Russian operating revenue nearly flat, with price strength offsetting the loss in volume. The impact on rising commodity prices this year is now up about 3x year-on-year compared to an earlier expectation of two-fold.

Investment bank UBS said the report showed Renault would be able to offset the additional costs and improve profit margins.

Frank Schwope, analyst at Norddeutsche Landesbank Girozentrale, was less optimistic.

“Renault needs positive news, like working more closely with another group or allying with a new partner, especially since the alliance with Nissan is not going well and the evolution of the AvtoVAZ/Lada stake However, Renault, like most manufacturers, is likely to benefit from the scarcity economy, where price effects outweigh volume effects, and where manufacturers make high profits despite low sales,” Schwope said.

Renault has announced its intention to withdraw from Russia, but has not yet provided any details. He said on Friday that discussions on the future of these assets were progressing.

Meanwhile, according to a report by Automotive News Europe, Renault is considering either selling part of its 43% stake in Nissan back to the Japanese company or looking for an outside buyer. Citing “people familiar with the matter”, the report said it could involve Chinese company Zhejiang Geely Holding, which owns Volvo Cars.

Mercedes and Stellantis have also been suggested as possible partners should the Renault/Nissan alliance, which also includes Mitsubishi, finally breathe its last. Investors say Renault needs an active partner to stay competitive in the global automotive sector currently disrupted by the aftermath of the coronavirus pandemic, the semiconductor and supply chain crisis, the car revolution electricity and the Russian invasion of Ukraine

Renault acquired the 43% stake in Nissan when it bailed out the company from bankruptcy in 1999. Nissan owns a 15% non-voting stake in Renault. France owns 15% of Renault. Some commentators have said Renault should sell some of its stake back to Nissan, which would help ease the uneven power relationship. It would also help restore Nissan’s power and raise funds, but requires the approval of the French government.

Renault CEO Luca De Meo launched a stimulus program called “Renaulution” last year, which calls for the launch of 24 new vehicles by 2025 and more electric cars. Renault could also use the money from the sale of its stake in Nissan to fund its plan to spin off electric car assets, including those from Nissan. The remaining petrol and diesel assets would also be grouped between Renault and Nissan.

Renault generated 10% of its revenue and around 12% of its operating margin in Russia in 2021. Renault has owned 51% of AvtoVAZ since 2016, alongside Rostec State, a Russian state company headed by Sergey Chemezov . Renault sold nearly 500,000 vehicles there in 2021, including 358,000 Ladas and 135,000 Renault-branded cars, mostly for its value business Dacia.

Analysts said Renault appears to be the weakest of Europe’s mass carmakers, not least because it turned down the possibility of an alliance with what was once Fiat Chrysler Automobiles (FCA). Groupe PSA later moves in and merges with FCA.

Renault’s long-term strategic plan sacrifices sales for profit. It will cut production to around 3.1 million vehicles in 2025 from 4 million in 2019, cut R&D spending by 500 million euros ($605 million) per year to 2.5 million euros ($3 million dollars) by 2023 and will gradually increase operating profits to 5% in 2023.

Former alliance chief Carlos Ghosn wanted a full merger of Renault and Nissan to assuage Japanese concerns that France held an overwhelming and unfair share of power in the alliance. His arrest and escape from Japan put an end to this plan.

Upcoming first quarter results include Mercedes (April 27), Ferrari and VW (May 4), Stellantis and BMW (May 5).

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