Renault to split in five businesses in big overhaul

Renault to split in five businesses in big overhaul

Automotive News Europe — 2022-11-08

Automotive Industry

Renault announced a major overhaul that will see it separate its activities in five businesses, deepen ties with China's Geely and spin off its electric vehicles unit through a stock market listing in 2023.

The automaker set an 8% operating margin goal for 2025, which would increase to more than 10% in 2030, from 5% expected in 2022. It also aims for an operating cash flow of more than €2bn a year between 2023-25 from more than 1.5bn in 2022, rising to more than €3bn in the following five years.

Dividend payments will resume next year after a three-year hiatus as turnaround efforts take hold, Renault said on Tuesday during an investor day.

CEO Luca de Meo, who took over a struggling Renault in 2020, has embarked on a radical overhaul of operations as the automaker seeks to navigate the difficult and costly transition to electrification.

The main plank of the automaker's strategy is separating its combustion engine business -- which will be housed in a 50-50 joint venture with Geely -- from its electric vehicle unit, to be listed in the second half of 2023. The move is expected to help Renault raise funds for EV development and technology and narrow the gap with bigger companies such as Stellantis.

Renault is reorganizing into five different units spanning electric cars, combustion- and hybrid-engine assets, the Alpine sports-car brand, financial services and new mobility and recycling businesses.

"We are creating independent businesses, focused on structurally more profitable activities, open to external investments, each of built around an indigenous set of technologies," De Meo said.

Using a sports metaphor, he compared the "old" Renault to a pentathlon athlete who would struggle to win gold medals in all five sport specialties.

By partnering in each of its new 5 businesses with the best available partners, "Renault hopes to win medals in those different sports instead of remaining at an average level in all 5," he said.

Renault's new targets

  • Operating margin 8% in 2025, 10% in 2030
  • Free cash-flow above €2bn per year on average over 2023-2025, above €3bn per year on average over 2026-2030
  • Restore dividend from 2023; plan to raise payout ratio gradually to as much as 35% of net income in mid-term
  • Dividend plan hinges on Renault returning to investment grade rating
  • Ampere EV business to beak even in 2025, around 10% operating margin in 2030
  • Alpine sports-car brand to generate €2bn in revenue in 2026, more than €8bn in 2030 with breakeven targeted for 2026
  • Dacia will grow margins from 10% to 15% by 2030 as it enters the C-segment. LCVs also to boost core margin
  • Mobilize: Financial service business. Will diversify into insurance and operational leasing.

The two most important steps relate to the automaker's EV and combustion-car divisions, named Ampere and Power. 

For Ampere, the company is seeking external investors. It’s also weighing an initial public offering on Euronext Paris in the second part of 2023, at the earliest. Renault plans to keep a "strong majority" in Ampere and is counting on the support of potential cornerstore investors, such as Qualcomm.

Renault is aiming for a roughly €10bn valuation for Ampere, people familiar with the situation have said.  That valuation would top Renault’s current market value of €9.4bn. The target is aspirational and the IPO will be subject to market conditions, the people said.

The business will have a lineup of six electric cars before the end of the decade and plans to make about 1m EVs annually for the Renault brand by 2031. 

Renault's five new business units

Renault's carve-out push has been at the heart of tense talks with Nissan this year as the two companies seek to reshape a two-decade-old alliance that has been problematic since the 2018 arrest of former leader Carlos Ghosn.

The valuation of Ampere has been among sticking points in the discussions, as well as Nissan's intellectual property concerns about sharing intellectual property with others, including a Chinese rival like Geely, people familiar with the talks have said.

De Meo said Renault would have more to say on the alliance  when it was ready, and that -- as in a marriage -- Renault needed to have its "own life."

"Like even in a marriage, it is important for us to have our own hobbies and our own life," he told investors.

The talks have one week remaining to meet on 15 November target the companies had set to reach a deal, according to sources.

Renault will expand the Alpine brand into new markets and segments. Shown is the 300-hp Alpine A110R sports coupe, which takes 3.9 seconds to go from 0-100kph.

Alpine may launch in US, China

Renault will push to broaden the appeal of its boutique Alpine brand, which is set to develop a new lineup to include hatchback and crossover models, as well as targeting further segments.

Renault expects half of Alpine’s growth -- the unit sold 784 cars during theQ3 -- to come from new markets including potentially North America and China.