Renault Expects to Dodge Slowing Economies With Revamped Models

Renault SA offered an upbeat view of its mainstay market, expecting strong demand in Europe for its overhauled lineup to insulate the carmaker from an economic downturn.

(Bloomberg) — Renault SA offered an upbeat view of its mainstay market, expecting strong demand in Europe for its overhauled lineup to insulate the carmaker from an economic downturn. 

The manufacturer, expecting margins to rise further this year after accelerating a turnaround plan, said new models like the Arkana and the Megane e-tech will help keep prices firm even as consumers fight a cost-of-living crisis. Component shortages and logistics problems are likely to extend an order book that’s already at record highs. 

“We are back in the game and now we are ready to fly and to race,” Chief Executive Officer Luca de Meo said Thursday, presenting annual results. “Free cash flow generation is at a historical level and we are finally cash rich.”

Renault expects a group operating margin at or above 6% in 2023, compared with 5.6% last year while free cash flow will be at or above €2 billion ($2.1 billion), around the record level of last year. The company is also resuming dividend payments for the first time in four years. 

The automaker is pushing ahead on a deep revamp of its business following this month’s landmark deal to reshape its troubled alliance with Nissan Motor Co. The hard-won agreement caps a tough twelve months for the company dominated by a costly withdrawal from Russia while navigating crippling chip shortages. While some of that pressure is easing, Renault still faces logistics troubles with a lack of parts preventing vehicles from being delivered. 

Record orders at the end of last year for Europe, equivalent to three-and-a-half months of sales, might stretch even longer due to logistics problems, Chief Financial Officer Thierry Pieton said during a press event. Rising earnings and the prospect of an alliance reboot have boosted Renault’s shares, making the stock the top performer in Europe’s Stoxx 600 Automobiles & Parts Index this year with a market value of €13 billion.

Last year, semiconductor shortages shaved production by about 300,000, Renault said, with carmakers including Volkswagen AG still struggling to source enough of the components. The company, like its peers, has prioritized production of its higher-priced vehicles as factories ground to a halt. Manufacturers have been pointing at stretched order books to help cushion any slowdown with growing questions over when consumers pummeled by a cost-of-living crisis might start to cancel on long-standing deals.

Renault’s “strong outlook goes against much of the autos narrative,” Goldman Sachs Group Inc. analyst George Galliers wrote in a note. 

Five Units

Following the deal with Nissan, Renault is moving ahead with a split of the business in five units as well as plans to work with new partners, such as China’s Zhejiang Geely Holding Group Co. and Qualcomm Inc. The company is in talks with US car dealer AutoNation Inc. to start selling Alpine sports cars in the US, de Meo said. 

Renault is “not stopping here” on partnerships, de Meo said Thursday. 

As part of the separation, Renault is planning an initial public offering of its carved-out electric-vehicle business called Ampere in Paris “ideally toward the end of the year,” he said, with a lead for the new company set to be named next month. The company could seek a €10 billion valuation with Nissan pledging to invest in the venture. The company also expects to move forward with a joint combustion-engine business with Geely during the summer. 

In November, Renault outlined new mid-term targets for an operating margin of more than 8% in 2025 and above 10% by 2030. Group revenue during 2022 rose 11% to €41.7 billion with operating income more than doubling to €2.2 billion. 

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