On February 15th, at 08:00 am CET, Renault Group started its presentation for the 2023 Full Year Financial Results. Luca de Meo (CEO Renault Group) and by Thierry Piéton (CFO Renault Group) conducted the presentation.
Some key moments of 2023:
- Renault’s financial performance results have been the highest in more than a century, surpassing the operating margin and free cash flow that had been previously planned in February 2023.
- In 2023, Renault had a historic record operating margin of 7.9% and generated a free cash flow of EUR 3 billion.
- In only three years, the company went from record losses to record results due to strategies to cut costs, focus on pricing, and constantly improving the operation performance. It’s the result of an in-depth work in the line-up, commercial policy, construction and organization.
- The Renault Group is divided in 5 core centers that focus in different business, adapting to the new automotive landscape: Power HORSE (ICE & Hybrid), Ampere (EV and Software), Alpine (High-end), Mobilize (Financing, Energy & Mobility) and Neutral (Circular Economy).
- Instead of dealing exclusively with T1 suppliers, Renault solidified its involved in the supply chain in different levels, creating a more visible relation.
- The Alliance between Renault, Nissan and Mitsubishi was re-ignited focusing on operations.
Financial Results:
- The Group revenue was +13.1% in 2023, at EUR 52.3 billion (including financial, mobility and automotive services).
- The automotive revenue alone stood at EUR 48.150 billion.
- Renault was the best-selling French brand in the world in 2023, with a growth of 9.4%. In Europe, the company moved from the 5th to the 2nd place in the passenger car and LCV markets.
- The LCV share, with 25.7% growth, Renault took the second place, and was first in commercial vans.
- Renault Group moved to the third place in Europe among car manufacturers.
Outlook and Planned Portfolio for 2024:
Renault Group is planning to launch on average, one new vehicle each month of 2024. In a total of 10 new vehicles, five of them will be launched in 100% electric exclusively or as part of the powertrains proposed for Renault Master (in the case of the LCVs).
- Renault: Scénic E-Tech, Rafale, Renault 5 E-Tech, Kardian, Symbioz, Master, and an unnamed D-SUV (in South Korea)
- Dacia: Duster, Spring
- Alpine: A290
In addition to these models, Renault also announced that in 2024, it will launch the Renault Duster outside of Europe, and a Captur facelift.
In 2024, Renault will also have major launches in Latin America, Türkiye, Morocco and South Korea, which is a start of a new plan focused in the international market. This strategy is to be developed in the next 36 months.
Cost discipline remains a goal for the next years, with an intended reduction of up to 50% in the costs for EVs and 30% for ICE and hybrid vehicles by 2027.
For 2024, the operating margin is expected to reach up to 7.5% generating a free cash flow of up to EUR 2.5 billion.
Q&A
1. Pricing
We have seen Renault's medium-term view on pricing of EV and ICE cars, but is there any meaningful difference regarding long-term pricing for them? Do you think consumers will perceive EVs as better cars and have a higher willingness to pay high prices, or will it be the other way around, and EVs will have to become cheaper than ICE cars in the long run?
- CEO Luca de Meo: I believe that for this generation until 2030, there will always be a slight difference in pricing. Of course, for small cars, you can reduce the size of the battery and the pricing, making it more competitive. At this point, everyone is trying to reduce the costs of EVs to find price parity with ICE, but we are also looking at the total cost of ownership. For example, on the Scénic, when you look at the cost of energy for driving around 30,000 km in 3 years, you notice that this is comparable to the cost of a plug-in hybrid vehicle. We are going towards parity. The industry is working together to reduce the price of EVs, but within this generation, I don’t believe that this will necessarily happen, and I also don’t believe that this is the most important thing. Renault is taking a very balanced approach to the market when it comes to EVs. We are not pushing unwanted cars to the market, taking good care not to destroy the residual value. This wouldn’t be a good idea.
2. Financial service
Is there a risk for financial services concerning the lower-than-expected residual values on BEVs in the market? Can you share how much the share of BEVs is in Mobilize's books at this time, and is there still room for RV to fall further before they start affecting your financial services?
- CFO Thierry Piéton: It’s a relatively small share on the books of Mobilize Financial Services. EVs have a 10% exposure in Europe, so it’s limited. Mobilize doesn’t carry the risk of all of that portfolio either. We always take a careful approach, monetizing on a quarterly basis. We adjust the assumption in terms of residual value based on what we do in the market, and we conduct loopback tests (tests de rebouclage) every closing with the team to evaluate our residual values. We take a prudent approach and will keep monitoring it for the future.
3. Pricing of C-SUVs
To what extent are the price reductions of the Mégane E-Tech earlier this year covered by the raw material tailwind? What are the expectations for 2024? Some of your peers have been following up with cost cuts, especially in the SUV C-Segment. Taking this into consideration, do you believe that the present price for the Scénic is adequate, or would you consider bringing it to the market at a slightly lower level?
- CFO Thierry Piéton: Our approach is – we reduce costs first and then adjust pricing second. I won’t go into details about the relationship between raw materials and productivity, but I can tell you that in our process to launch a new EV, we look at the improvements we make, considering the feasibility of changes, retrofitting, taking into account the advances in new models, as is the case with the Mégane. The pricing mix versus raw material effect will continue to be positive. There’s less pressure on the pricing side as raw materials are starting to offset, but we will continue to adjust pricing, and we will certainly also continue to offset foreign exchange with pricing. Pricing will be positive in 2024, but not as positive as in 2023.
Regarding the Scénic question, the model has an entry level of less than EUR 40,000, and we believe that this is a very well-positioned car at this price, especially when compared to Chinese competition.
4. Product mix
In the product mix, we understand that the Clio didn’t have a positive impact on the 2nd half of 2023. Are there any planned changes for this?
- CFO Thierry Piéton: Yes, the turnover was slower in the 2nd half of the year because of the Clio. The vehicle is selling really well, but we took a lot of costs out for the model, and the average revenue per unit is slightly down. However, we are actually improving on the margin side. In 2024, things will change slightly, as we are launching a few cars with a high revenue per unit, namely the Scénic, the Renault 5, and the Rafale. We will continue to lift the mix elements on the margin level.
5. 2024 actions
Can you speak a little bit about the actions to be executed in 2024 to reduce the cost base? Any comments on potential collaboration with Volkswagen regarding a small car? On the financial side, could you talk about the cost reductions for purchasing and manufacturing in 2024?
- CEO Luca de Meo: In the EV space, the creation of Ampere brings another approach to the development of the product. Instead of having a team develop a model and then, after some years, having this team develop another model or a next generation, because of Ampere’s way of working, if we find out a way to reduce costs in a platform, we can adopt it right away. Speed is very important in the EV sector now, especially if you want to beat foreign competitors. As for potential cooperation with other OEMs, we can’t really comment on that, but we are open to cooperation with other companies like we did with Geely this past year.
- CFO Thierry Piéton: On the financial side, the discussions that we have been having with suppliers have started to pay off, which means that the big change in 2024 is good news going forward.
6. Strategy for LCV and Dacia
Regarding vans, Renault is a smaller competitor compared to other companies. What is the strategy for this segment? As for Dacia, it previously offered relatively cheaper models, but recently there has been a change, and the structural base cost of Dacia cars has increased. Can you maintain the share of buyers for Dacia models amidst this change?
- CEO Luca de Meo: Actually, LCVs at Renault are attractive to businesses; they are highly competitive, such as the Kangoo and Traffic models. In terms of brand, Renault holds the number one position in Europe. Regarding Dacia, our strategy is for it to remain cost-advantageous for both the present and future generations. The latest development concerning Dacia is that it is no longer restricted to the B-Segment; it will enter the C-Segment. While we may not be selling cars for EUR 10,000, we anticipate sales in the range of EUR 25,000 to 30,000, ensuring profitability. The Dacia strategy remains valid, and we are actively seeking solutions to enter the EV sector.
7. Possible policy change and CO2 emissions
There are going to be some political and public decisions made after the election of the European Parliament in June 2024 that are expected to directly affect Renault’s business concerning taxes and Chinese cars. Can you discuss Renault's flexibility to adapt to political changes? Do you anticipate industry pushback depending on the severity of the regulations and CAFE Standards?
- CEO Luca de Meo: Nothing has been decided yet before the European Parliament elections. Due to regulations pushing for a quick reduction in CO2 emissions, a significant number of electric cars will need to enter the market rapidly, and Renault will be part of this effort. We will supply this demand and sell the vehicles needed to meet the regulations.
The Corporate Average Fuel Economy (CAFE) regulations mandate a significant reduction in allowed CO2 emissions by 2025 (in 8 months from the time of this presentation), to around 100g of CO2 in the total fleet, with another goal set for 2030 of even lower emissions (50g) allowed in the fleet. To achieve the 2025 goal, our proportion of EV and hydrogen cars must increase to 25% (currently at 16%), and by 2030, the majority of car sales should be zero-emission vehicles. This means that we will need to introduce many more emission-free vehicles into the market to achieve these targets. We all agree that EVs are the future of the industry and are beneficial for the environment, so we must push for progress.
Regarding pushbacks, it's unlikely to happen from manufacturers as we see it as an improvement of the system. The market is undoubtedly dependent on new infrastructures and subsidies, but this is changing. Renault specifically has next-generation B-segment models in the EV platform, which are approximately 30% cheaper than the Mégane – Scénic platform, for example. We can reach many new customers with a price range below EUR 30,000. China is very strong in the C-Segment, C-Segment SUV, and higher segments, but there is a huge market in Europe for small cars. Based on our estimations, we will be able to meet the CAFE Standards for 2025 and look forward to achieving the 2030 ones.
Renault financial results conference