“We can’t pass fifteen cars when the weather is good, but we can pass fifteen cars when it’s raining”, Renault general manager Luca de Meo said this Tuesday as he paid tribute to the famous Brazilian racing driver Ayrton Senna, who died in the 1994 San Marino Grand Prix. This quote alone shows that the former patient of the auto industry, which was bailed out by the French State during the health crisis, intends to position itself as a leader in innovation at a time when it has to lead the sector’s energy transition. it is weakened not only by an industrial crisis linked to a shortage of semiconductors, but also by rising energy costs and the risk of falling demand due to inflation and a worsening economy.
“We want to be among the best in the market”, essentially explains that whoever takes the wheel of Renault in July 2020… But the challenges are legion and, above all, expensive. Therefore, it needed an investor day to inform the markets about the projects that Renault wants to implement in the next ten years, but above all that it wants to finance them.
New value chains
Back in 2021, in the Renaulution strategic plan, Luca de Meo described three phases until 2030: resurrection, renewal and then revolution. The first phase was completed in 2021. The restructuring plan was completed and the group was back in the green. The second phase consisted of redesigning the new range… It is now available and new products are being developed. It’s time for Luca de Meo to go third by starting his revolution. This should allow the group to prepare for the new world of the car that will emerge in 2030 and will redefine the terms of the value chain. For Renault, it’s about preempting innovations that could or should be the first to contribute to profits. Luca de Meo identified four new value chains: electric vehicle, software, mobility and circular economy.
“This will allow us to tap into a €200 billion market, doubling our current reach. This is a growth potential not seen since the emergence of China’s auto industry,” he said.
In order to position itself without feathering cash and debt, Luca de Meo wants to set up joint ventures with relevant players that bring skills too long and too expensive to recreate internally. In software, Dassault Systemes formed Software Republique with Orange, Atos and ST Microelectronics. It also announced new partnerships with Google. But the surprise of the day is his arrival American chip maker, Qualcomm, a subsidiary in the capital of Ampere, will be dedicated to electrification. Renault did not quantify the amount of the investment, but having such a shareholder is a major asset. Luca de Meo declined to comment on Nissan, whose entire financial community is awaiting commitments to include Ampere’s capital. Announcements are expected at the end of the month as part of the wider Alliance rebalancing.
Heat engines will continue to pay off
Luca de Meo also decided to create a subsidiary specialized in thermal power units. Baptized Horse will welcome up to 50% strong Chinese group Geely in its capital. As such, this new venture will supply both Renault and Geely brands, including Volvo, a subsidiary of the Chinese group. Renault has already announced eight customers for these products, which range from engines to gearboxes and hybrid systems. The target turnover is 15 billion euros per year. The Horse constitution should allow Renault to expand its market coverage from 40% to 80%.
In the circular economy, Renault is also working to find partners to finance the 500 million euros needed by 2030.
So Luca de Meo is reorganizing the group to participate in all the new automotive value chains of tomorrow. By limiting investment, this new profit also limits the relay’s control over added value. But in reality, Renault retains the upper hand in its historical activity: selling cars. With Power, the name of Renault’s historical channel, the automotive group is 100% focused on the business of designing and selling cars. It is simply a matter of seeking profit through an enhanced product strategy and aggressive pricing policy. The attack on the C segment (compacts) should be the main lever for profitability. Renault hopes that this segment will account for 50% of sales by 2025. The main advantage of the compact is that it generates twice the income of the following category.
Dacia, crown jewels
With Dacia, Renault also wants to consolidate and increase this source of profit by opening up a wider market reach. The low-cost brand has already generated an operating margin of 10%, which means that the group doubled its performance in the first half and should rise to 15% in 2030… A monumental figure in the market outside the luxury brand, few groups have double-digit operating margins in the automotive industry.
Luca de Meo is still maintaining tension with Alpine, whose next model is expected. The premium sports brand wants to launch up to six models in the coming years with the ambition to be very aggressive internationally. Alpine may enter the D and E segments to meet the expectations of the Chinese market.
The commercial vehicle is also being replaced
Another surprise is the creation of a new subsidiary around commercial vehicles. This branch has historically been a major revenue generator for Renault, accounting for around 20% of profits. Luca de Meo wants to go further and also to stop this activity. Flexis is looking for another partner to respond to two key future issues: the arrival of new competitors and the issue of the last mile, a real challenge in urban logistics. Luca de Meo believes that hydrogen is the appropriate answer to these issues. The group is working on the FlexEvan concept, which aims to have “the capacity of the Kangoo, the Trafic and the turning radius of the Clio”. “We intend to reduce the total cost of use over the entire life cycle by 30%, which will allow us to recover the new price of the car,” said Luca de Meo, which amounts to 100,000 euros. Total.
For Luca de Meo, the situation is not just an accumulation of problems, but a source of fantastic opportunities that he wants to seize wisely. As Ayrton Senna said, the ideal weather to overtake fifteen cars…