“Traditionally, OEMs did everything themselves on a vertical basis,” Renault CEO Luca de Meo says. “Now, we must learn to play horizontally.”
PARIS — The third phase of Renault Group CEO Luca de Meo’s plan to revive the once-ailing French automaker kicked off on Tuesday with a sweeping reorganization that will turn Renault into a “next generation automotive company.”
Among the highlights: the spinoff of Renault’s electric car business as a publicly listed company, moving internal-combustion drivetrain activities to a joint venture with China’s Geely, and a pumped-up role for Alpine, the sports-car and racing brand.
De Meo, a former head of VW’s Seat brand, took the reins at Renault in July 2020, just as the company posted a stunning loss of 7.29 billion euros in the first half of the year. But Renault’s troubles dated to November 2018 with the arrest of Renault-Nissan Alliance Chairman Carlos Ghosn in Japan. The arrest, on charges of failing to report deferred compensation, exposed deep rifts between the partners and led to a near-complete management turnover at Renault at a time when other automakers were recording record sales in Europe.
Read more: Renault to split into five divisions
De Meo and his team have stabilized Renault’s finances under his Renaulution plan launched in January 2021 and an earlier cost-cutting measures (the “Resurrection” phase), and overhauled brand lineups to focus on the more profitable compact segment and cut back on factory capacity (the “Renovation” phase).
Renault says the Austral SUV (shown) and other new compact models will have margins that are “multiples” higher than the cars they are replacing.
Now, in the “Revolution” phase, De Meo says he is preparing Renault for the automotive megatrends of the future: Electrification, the software-defined vehicle and new mobility models.
He laid out his vision for Renault to analysts in an 80-page plan on Tuesday in Paris. Here are nine key takeaways:
In 2019, Renault was a “complex matrix organization with at least four dimensions: functions, regions, brands and the Alliance,” de Meo said. “Responsibility was shared and scattered.” To streamline the company, De Meo gave engineering under ex-PSA executive Gilles Le Borgne responsibility for product cost and timing, giving the brands the tools to be closer to consumers.
Now, there will be six separate units focused on “future value-creating businesses”: Power, producing combustion based vehicles under the Renault and Dacia brands, as well as commercial vans; Ampere, a spinoff of the EV business that could be publicly listed as soon as the second half of 2023; Horse (a 50-50 joint venture with Geely to build combustion-based powertrains, including hybrids); Alpine; Mobilize; and the Future is Neutral, for recycling and “circular economy” activities. Ampere will start reporting profit and loss for the second half of 2023, with Alpine, Mobilize and the Future is Neutral doing the same in 2024.
“Organization drives value creation,” de Meo said.
Free cash flow will grow from 158 million euros in 2019 to an average of 2 billion euros a year in 2023-25 and increasing to 3 billion annually in 2026-30, de Meo said, meaning the plan will be able to pay for itself. But Renault remains open to outside investment, and will work with partners – including Google and Qualcomm — across the new units to minimize risk and share development costs.
“Traditionally, OEMs did everything themselves on a vertical basis,” he said. “Now, we must learn to play horizontally,” because challenges like electrification cut across different industries and sectors. “We invest strictly on what matters to secure our business,” he added.
Under the Renaulution plan and an earlier cost-cutting measure announced in 2020, Renault has reduced its break-even point by 40 percent – the equivalent of 1.2 million units less per year.
This is especially important now, with Europe and other regions facing potential recessions, inflation and higher energy prices, all of which could cripple demand. But De Meo said that even with very conservative market assumptions, in 2023 Renault will use over 100 percent of its installed capacity.
With the EU mandating sales of zero-emission cars only starting in 2035, automakers are struggling to balance investment in the growing electric vehicle market with a huge but soon to be obsolete internal combustion value chain. Some companies, including Ford Motor, are creating separate internal business units for the two technologies. But Renault has gone further, announcing a 50-50 partnership with Geely in Horse, which will build engines and transmissions for the Renault Nissan Mitsubishi alliance, as well as its own Volvo, Geely and Proton brands.
“With Horse, we give a future to our combustion engine technology because we give it scale,” de Meo said.
The proof? De Meo says it will cost less for Renault to buy engines from Horse than it would to produce them itself. The spinoff will reduce fixed assets by 2.5 billion euros, and save 2.4 billion euros in R&D and capital expenditures between 2023 and 2030, Renault says. Further, engineers who have to sell their technology to outside companies have more incentive to innovate and find efficiencies, De Meo says. Horse will have “Day 1” revenue of 15 billion euros, produce five million units a year, and sell in 130 countries. Geely’s own combustion-engine spinoff, Aurobay, will be integrated into the new company.
The Renault 5, shown in concept form, and other coming full-electric vehicles from Renault will be part of the Ampere unit.
The EV spinoff Ampere is an effort to capture some of the market magic of pure EV players such as Tesla and China’s BYD. De Meo says it will benefit from more than a decade of EV experience at Renault, as well as a network of assembly plants in northern France that, he says, will be able to build an electric car in less than 10 hours by 2025, even lower than a certain EV leader whom he would not name.
But a public listing of Ampere – which De Meo says will be a “full fledged” automaker with a lineup of six models by 2030 — appears far from certain, despite a target of the second half of 2023. The record is mixed for recent automotive public listings, with the share price of Geely’s Polestar, which went public in June, falling to $4 last week from a high of $13. And although Qualcomm has committed to taking a stake, alliance partners Nissan and Mitsubishi have not yet said they would invest.
Renault already has well-publicized partnerships with Qualcomm (for chips) and Google (for infotainment systems, among other things) but on Tuesday De Meo announced much more comprehensive tie-ups. Qualcomm will take a stake in Ampere, and will co-develop a computing platform for EVs.
Google’s Android Automotive currently powers the infotainment system in the Megane E-Tech and the new Austral SUV. Google is now working with Renault to co develop a “car OS” based on Android Automotive beyond infotainment in what De Meo says is an industry first. “We benefit from the power of a startup, with Google able to attract the world’s best software developers,” he said.
One goal of creating such a “software-defined vehicle” is to keep buyers tethered to Renault’s after-sales system, throughout their cars’ life cycle. “The longer they stay, the more money we make,” he says. “It’s a pretty simple algorithm.”
De Meo is counting on exposure to millions of Formula One TV viewers to build awareness of the Alpine brand.
Renault’s earlier efforts to sell high-margin premium cars have fallen short time and time again, with cars such as the Renault 25 and Avantime failing to compete with BMW and Mercedes, among others. But De Meo thinks that Alpine offers an access point. Even though the brand is virtually unknown outside of Europe, tens of millions of Formula One fans are exposed to it through Renault’s racing efforts, helping to build awareness and anticipation for a full lineup of new Alpine cars.
“Alpine was at a dead end two years ago,” De Meo said, but on Tuesday he unveiled plans for two new models, midsize (in 2027) and large (2028) crossover EVs that could even be launched in North America and China to help the brand grow. The midsize car will be built in partnership with a “leading EV player,” he said. The goal for Alpine is to be “a high-end sports car brand with global reach,” he said, suggesting that a future listing is not out of the question.
De Meo revealed a number of previously unreported figures about low-cost brand Dacia, which has just had an image makeover and launced the top-selling Jogger compact-sized crossover. Margin for Dacia is “over 10 percent,” he noted, with a new, premium-like target of 15 percent for 2030. Its factories, in Romania and Morocco, are running at 120 percent of capacity, and distribution costs are half of the Western European average.
Dacia’s profits will be boosted by more compact vehicles based on an extended small-car CMF-B platform, similar to the Jogger, which will double margins compared to small cars such as the Sandero. First up is the Bigster, which will be followed by two other models by 2030. A downside for Dacia is that a planned combination with Russia’s Lada now looks to be off the table after Renault sold off its assets in that country following the invasion of Ukraine.
Renault has long been among the brand leaders in commercial vans in Europe – currently with a 14 percent share, but it is facing new competition, including from Stellantis, which has added the Fiat brand to Citroen, Peugeot and Opel, and from EV startups. Other headwinds include pollution and emissions regulations that will require more and more electric sales. But at the same time, the “last mile” market – ideal for EVs — is projected to grow by 10 percent annually, and vans deliver solid double-digit margins.
The big news Tuesday is that Renault will launch a new full-electric van on a modular “skateboard” chassis that it calls FlexEVan, with an “OEM” collaborator that De Meo would not name, under a new brand, called Flexis. The goal is 30 percent lower operating costs. He said it would have the capacity of a medium van in the footprint of a compact Renault Kangoo.
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