Renault published its 2019 results on Valentine’s Day. It is unlikely the company made its shareholders happy. The company lost €383 million in 2019. Thanks to a €242 million bonus from Nissan, only €141 million was charged to the shareholders. That was about €3.5 billion less than in 2018. Half the difference is less profit from associated companies (mainly Nissan). The other half is headwinds in a shrinking automotive market.
Groupe Renault did better in most markets than the market as a whole. The main exceptions were China and Argentina. Halting activities in Iran was the biggest single loss.
The more interesting part of the presentation, though, was about 2020 expectations and plans. The big challenge for this year is the Corporate Average Fuel Economy (CAFE) regulation in Europe. Renault must lower its CO2 emissions drastically or pay fines. Paying fines would likely result in very large red numbers.
From 2020 to 2024, the CAFE target becomes increasingly more challenging to meet. But the increases are small and should be easily met with increased electrification. The hardest part will be changing the trend of the last few years. The market and profits moved to bigger cars that produced more CO2 emissions. The whole past decade, the focus was on more efficient engines, but the only real progress that can be made with fossil fuel burners is with hybridization — costly and with small gains.
Plug-in hybrids have great performances in the test cycles on which the CAFE measures are based. Those tests suppose rational behavior, a driver who drives on electricity whenever possible. In practice, some drivers will drive more on gasoline than strictly necessary. A whole bunch of them will just never plug in. When, not if, those numbers get corrected based on real-world testing, the plug-in hybrid party will be over.
The only safe way to meet CAFE standards is with fully electric vehicles (BEV). All the tailpipe vehicles that produce more than the limit accumulate fines. Every BEV sold lowers the fines by €18,050 in 2020.
Renault is also looking at other ways to lower CO2 emissions besides electrification via conventional hybrids (HEV), PHEV, and BEV. One approach is increasing the share of LPG and diesel in the sales mix. I categorize these measures as Hail Mary efforts. They are not good for Renault and even worse for the customers.
The Renault managers during the presentation of the Twingo Z.E. and E-TECH models were confident they could stay below the CO2 limit. With the Twingo Z.E. reaching the showroom this spring instead of next winter, that would have been easier.
Besides CAFE in Europe, Renault faces a number of other challenges. Repeated attempts to enter the Chinese market haven’t created the hoped-for results. The results in the Indian market are not much better. India can grow in 10–20 years to the size of the Chinese market now. That requires investing in the coming decades’ results, not the coming quarters’ — hard when the bottom line is written in red.
The fossil fuel models are becoming stale. They should be replaced by fully electric models while their useful life is prolonged by a set of facelifts. It does not look like Renault is ready to follow that path.
Renault is really strong in a number of developing markets in Africa and Latin America, but those markets are not very stable. They can alternate between high growth and deep recessions. That said, it looks like they are less unpredictable and unstable compared to last century. Renault is not present in the promising markets in Southeast Asia.
These faraway places generate about half of Renault’s revenue. They will follow the transition to e-mobility that is happening in Europe and China. Renault needs to be more proactive in those regions than it has been in Europe and China in recent years.
And now the elephant in the room: Nissan. After the palace coup and the following civil war in the Alliance, the realization that they can’t be healthy without each other is starting to sink in. It appears that is harder to accept than the fact that the transition to BEV is really happening.
Nissan’s nationalism and Renault’s not-invented-here are bad advisors. Without each other, Renault and Nissan have no future.
It is time that the management starts to think of the Alliance as a single company. Like the “Shell Transport and Trading Company” and the “Royal Dutch Oil Company” were two companies once, each with their own board of directors and stock listings for nearly a century before management minds were ready for that last step of the merger (becoming a single company in the boardroom and at the stock market too).
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