Renault CEO’s Take on EV Price Reductions

As part of Renault's effort to optimize market share for its electric vehicle fleets, the company's CEO Luca de Meo on Thursday questioned the wisdom of rival companies' price reductions.

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“It is their decision as they have seen competitors move prices up and down, etcetera, etcetera. This is my observation of their behavior.” He told Trade Algo that is not a practice he recommends long-term because he thinks that it is not very healthy in the long run.

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We need to have a healthy business going forward, so as electric cars are ramping up in Europe, that is why, for Renault at least, the last thing I will do is compromise on the margins, you know, as electric cars are becoming more prevalent."

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Tesla and Ford recently announced aggressive price cuts amid burgeoning EV markets, forcing De Meo to make his comments.

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Tesla announced price reductions for its United States-marketed models across the board as well as its Model 3 and Model Y in European markets in the middle of January. As a result, Ford made price changes for its electric Mustang Mach-E crossover on Jan. 30.

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Consumer confidence in EV products may be eroded by price volatility, according to De Meo.

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According to him, "defending customer value will be our number one priority." This is because swings like these can destroy the value of a customer's assets. The old thing doesn't have to be destroyed at the start.

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The long-term allies of Renault are supporting its EV drive, with Nissan recently promising to purchase as much as 15% of the French automaker's Ampere electric unit, as part of the companies' 24-year alliance. Nissan's shareholdings of Renault will be reduced from 43% to 15% as part of the reshaped, previously lopsided alliance.

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“According to him, he is responsible for making the Ampere case so interesting for Nissan and Mitsubishi that they will decide to invest in it instead of an alternative project in their capital allocation meetings. A condition of the restructuring was that the investment not be made.

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A Renault spokesman told Trade Algo earlier in the day that the group operating margin of the company had doubled to 5.6% from 2.8% a year earlier, even though net income actually fell by 700 million euros ($748 million). This followed the company's June impairment write-off related to exiting its Russian operations worth 2.3 billion euros.

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According to Renault's guidance, it was expected to generate above 1.5 billion euros in cash flow last year but actually posted 2.1 billion euros in cash flow last year. Group revenues increased to 46.4 billion euros in 2022, from 41.7 billion euros a year earlier, while net profit from continuing operations increased to 1.6 billion euros from 549 million euros.

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A steady performance was evident in Renault shares at 1 p.m. the sharing price fell 0.38% to 42.96 euros in intraday trading.

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Issues With Supply Chains

In De Meo's view, the supply- and logistics-related obstacles that plague automakers since the Covid-19 pandemic has been ongoing for several years, especially due to the yearslong semiconductor chip shortage.

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De Meo told Trade Algo that a number of logistical and component hurdles, particularly in the automotive industry, would continue to make semiconductors a challenge for another couple of years. According to him, Renault will underproduce 300,000 cars by 2022 due to logistical and component challenges.

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Between 100,000 and 200,000 jobs are expected to be lost by 2022, according to him.

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As a result, it will remain there. Still, I think we're better prepared than we were before. Organizing production to keep doing it is part of the knowledge we have. The year will not be like the rest of them, however," De Meo added.

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It targets a world-class operating margin of at least 6% and operational free cash flow of at least 2 billion euros in 2022 despite this outlook and the "still challenging environment."

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According to Trade Algo, the company has also proposed its first dividend in four years - due to be paid in May following approval at its Annual General Meeting in May.