Renault’s Uncertain Outlook Might Ease The Way For Mercedes Deal

When a big car manufacturer like Renault loses almost $10 billion in a year, reflecting its failing ability to compete, predators would be hovering as the share price plummeted and it became ever cheaper and ripe for a hostile takeover.

But the French government has a 15% stake in Renault, and its corporate profile is further complicated by its uncertain alliance with Nissan of Japan, so any frontal assault is unlikely to be attractive to investors. A couple of years ago Renault was about to merge with Fiat Chrysler Automobiles (FCA), but the deal fell through at the last moment because of fears, never actually confirmed, that the French government wouldn’t allow necessary job cuts and factory closures.

Shareholders might see an alliance with Mercedes-Benz as offering long-term reassurance.

Ironically, Renault compatriot Groupe PSA stepped in soon after and merged with FCA to create Stellantis, the 4^th biggest global auto maker in terms of its 8 million annual sales.

Some analysts look for Renault to seek a partnership with Mercedes, not least because it does have current cooperation projects. Daimler has a 3.1% share in both Renault and Nissan, and Renault and Nissan each hold 1.55% in Daimler. Daimler has since split its truck division off leaving Mercedes-Benz as the car and vans entity.  

Last week Renault reported a net loss of €8 billion ($9.7 billion), slightly more than the horrifying €7.85 billion average loss already forecast by analysts, as its business was torpedoed by the coronavirus pandemic-induced lock-down last year. Things aren’t going to get better anytime soon.

“2021 is set to be difficult given the unknowns regarding the health crisis as well as electronic components supply shortages,” CEO Luca de Meo said in a statement.

Later Renault said it hoped to limit production losses from the semiconductor shortage to 100,000, with a peak shortage expected in the second quarter and a recovery in the third. In 2020, Renault sales dived by a fifth to 2.95 million.

Given the underlying problems at Renault, it’s just as well that CEO de Meo last month announced his “Renaulution” long-term strategic plan to sacrifice sales in favor of profits.

Production will be streamlined to 3 basic engineering sets from 6, more electric cars will be built, upmarket wannabe Alpine will become an electric sports car brand, while down-market Dacia and Lada will have to make do with only one so-called engineering platform, down from the current 4.

Renault’s share price dived 5% Friday after news of the loss and slid a further nearly 1.5% early Monday.

According to the Financial Times’ Lex column, Renault needs to sharpen up its model line-up.

“Renault needs to launch some new models soon in order to counter a structural change in its market. Not only are car ranges rapidly electrifying, but new entrants from Tesla

TSLA
to NIO – can attract capital quickly. Once a leader in EVs (electric vehicles), Renault has decelerated,” said Lex.

That seems a bit unfair, given Renault’s little Zoe electric car was the biggest selling EV in Western Europe last year.

“It’s not all bad news,” says Lex. “Renault has electrified its leading combustion models such as the Megane and Captur.”

Investment bank Norddeutsche Landesbank Girozentrale (Nord LB) has long pointed out that Daimler, now Mercedes-Benz, would be a good alternative for Renault should the alliance with Nissan fall apart.

“Should the alliance fall apart contrary to expectations, the Daimler group could be an alternative for Renault, especially since both groups are mutually involved. The French are urgently looking for reliable partners. Also, a takeover of the French group would be easy if it weren’t for that French state anchor shareholder,” said Nord LB analyst Frank Schwope.

Renault holds 43% of Nissan. Nissan has a 15% non-voting stake in Renault.

Schwope points out that Renault’s low market capitalization of €11.8 billion ($14.3 billion) would in theory make it vulnerable to takeover.

Fitch Ratings has down graded Renault 3 times in 2020, and expects weakness at least for a couple of years.

“The downgrades reflected the sharp deterioration of key credit metrics in 2020 and our projections that a robust and sustained recovery will stretch beyond the rating horizon of the next two-three years. We expect key credit ratios to remain weak for the ratings until at least end-2022,” Fitch said.