Renault CEO Luca de Meo will break the firm into five separate divisions, disappointing analysts at its investor day this week.
The French carmaker unveiled a massive revamp on Tuesday, separating operations into five specialized businesses, each with its own profit & loss account and CEO, to raise profitability and increase the valuation of its distinct parts.
The approach focuses on separating its combustion engine and electric vehicle (EV) businesses. The engines division will be a 50-50 joint venture with Geely, while the EV arm will be listed next year.
Sports vehicles, recycling, mobility, and financing will be independent units. Geely, Qualcomm, and Google will all be outside investors and partners.
As investors revolted at the new structure, the market fell 3.5% on the day and 4% on Wednesday.
Lack of detail regarding Renault’s long-standing cooperation with Nissan weighed on attitude. This alliance has not been easy for Renault to maintain.
The split into five units “introduces excessive complexity for governance and valuation,” Jefferies analyst Philippe Houchois said.
Electro-push
Renault, an early adopter of electric automobiles, has fallen behind Tesla. It needed a state-backed emergency financing to survive the COVID-19 pandemic, lost money in 2019 and 2020, and is now attempting to reclaim market share.
A source familiar with the proposal said the new structure “may seem more complex, but with tight teams, we get higher efficiency and less complexity.”
Renault had to find partners barely a year after returning to profitability to stay in the electric race, which needs significant expenditure.
CFO Thierry Pieton dubbed the new set-up a “game changer” and CEO de Meo compared the “old” Renault to a pentathlete who would struggle to win gold in all five sports.
By teaming up with the finest partners, “Renault aims to win gold in those different sports instead of remaining mediocre in all five,” he stated.
Management must avoid duplicating inefficient and costly duplicate it worked to eliminate in a 2020 restructure.
S&P Global auto analyst Romain Gillet said it’s unclear where cross-business activities like HR and customer support will belong.
BOUNDARIES?
“The limits may not be so clear-cut,” he remarked.
Tom Narayan at RBC asked how independent the EV business, codenamed Ampere, could be from the combustion engine operations, given that they share some manufacturing and other processes.
“This contrasts with what other automakers have claimed, particularly Volkswagen, Mercedes, and Stellantis,” he said.
Renault said the five different companies can form partnerships to respond fast to technical concerns.
Qualcomm and Google want to extend their cooperation with Renault in car software design, and de Meo indicated Qualcomm could take a modest investment in Ampere.
Nissan, in talks to rebuild its alliance with Renault, is apprehensive of sharing its technology with too many outsiders, including Geely.
De Meo said Renault wants to revitalize the Nissan alliance. As in a marriage, “it’s necessary to have our own hobbies and lives,” he said.
Nissan must decide if this is too open.
