Lean Renault offers hard lessons for ailing peers
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Pierre Briancon
BERLIN, Oct 24 (Reuters Breakingviews) -Renault RENA.PA is swerving the challenges faced by its larger peers. The French carmaker reiterated on Oct. 24 its forecast of a 7.5% profit margin for 2024, avoiding drastic profit warnings from rivals like Volkswagen VOWG_p.DE or Stellantis STLAM.MI. The group run by Luca de Meo is facing problems like Chinese competition, European regulation and hesitant consumers like any other carmaker, but it seems to have been better at dealing with them.
Renault may be thriving partly because it was lucky enough to be plunged years ago into an existential crisis that prompted a radical shake-up at the top and focus on the bottom line. The result is that Renault’s 7.5% margin target this year is higher than that of both Volkswagen and Stellantis.
It helps that Renault has little if any exposure to the vagaries of the Chinese market, unlike Volkswagen. Starting in 1999, Renault was linked to Japan’s Nissan in an “Alliance” that started to unravel in 2018. Back then the Chinese market was left up to the Japanese group to explore - which led to a Nissan profit warning a few months ago. And de Meo’s group has no presence in the U.S., where peer Stellantis has been stuck with unsold Jeeps.
Renault is however exposed to the risk of fierce Chinese competition on electric vehicles in Europe, but here again it has been helped by early bets on the cheaper end of the electric and hybrid vehicle markets, with brands like Zoe, Twingo or Dacia. Electrified vehicles made up 30% of Renault vehicle sales in Europe, with hybrid sales up 52% year on year.
De Meo is not out of the woods yet. He is notably asking for more flexibility on the EU’s emission standards. But he still has seven new models to launch, which should support sales of electric cars. And he can count on cash from the gradual disposal of his Nissan stake, now down from 43% to around 30% of the Japanese group, and still worth almost 2.5 billion euros. Even after a 7% share price surge on Thursday, Renault is valued at just 3.5 times forward earnings, according to Visible Alpha data, roughly halfway between Volkswagen and Stellantis, on 4 and 3 times respectively. If de Meo keeps outperforming, Renault’s valuation can move up a gear.
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CONTEXT NEWS
French carmaker Renault on Oct. 24 reported an unexpected rise in quarterly revenues on Sept. 24, with strong demand for its pricier new models helping offset lower volumes.
Revenues came in at 10.7 billion euros ($11.55 billion), up 1.8% from a year earlier and beating analysts' consensus forecast of 10.35 billion euros provided by the company.
Renault is one of the few European carmakers not to have revised down its 2024 sales or margin guidance, following profit warnings from rivals including Volkswagen and Stellantis.
Renault shares were up around 7% at 1051 GMT, at 43 euros a share.
Renault's total returns against European peers https://reut.rs/3YmC6lB
Editing by Neil Unmack and Streisand Neto
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