By Gilles Guillaume and Sarah White
PARIS (Reuters) – French carmaker Renault pledged to slim down and focus more on technology as its new CEO laid out plans to revive a business hammered by management turmoil and the COVID-19 crisis.
In his first strategy update since taking over in July, Chief Executive Luca de Meo said on Thursday he would cut an extra 500 million euros ($608 million) in costs and focus on producing a smaller number of profitable models.
Car production will drop to 3.1 million vehicles by 2025 from 4 million in 2019, while half of new launches will be electrified – including a revamped version of the classic Renault Super Cinq model.
Focused on efficiency and profitability, the plan is a marked departure from the ambitious expansion drive set out four years ago by former boss-turned-fugitive Carlos Ghosn.
But investors appeared unimpressed, with Renault shares down 3% in morning trade. Jefferies analyst Philippe Houchois described the new profit targets as “underwhelming,” reflecting the “depth of challenges at Renault.”
Even before the COVID-19 pandemic upended the car industry, Renault was struggling to adjust to life without Ghosn, the architect and long-time boss of its alliance with Japan’s Nissan. Ghosn was arrested in Japan in November 2018 on financial misconduct charges, which he denies, and later fled.
The company also faces new challenges, as the European Union tightens emissions regulations and rivals PSA and Fiat Chrysler Automobiles NV complete their merger to create Stellantis, the world’s fourth-biggest automaker, with potentially more resources to meet the industry changes.
Under de Meo’s efficiency drive, Renault will build vehicles on fewer shared platforms to pare back costs by 600 euros ($730) per car by 2023, and will aims to cut development time for a new vehicle by a year, to under three years.
The 53-year old former head of Volkswagen’s Seat brand also announced a new business unit, called Mobilize, focused on “new profit pools” from data, mobility and energy-related services.
The aim is to derive at least 20% of Renault’s revenue from that business by 2030, while the shift to a more electric line-up will include building a battery plant in France with one of the company’s suppliers.
“We’ll move from a car company working with tech to a tech company working with cars,” de Meo said.
With a higher cost savings target of 2.5 billion euros, Renault aims to lift operating margins to 5% by 2023.
It also plans to lower capital spending and research costs to 8% of revenue from 10% by 2025. Together, these measures should lower Renault’s break-even point by 30% by 2023.
The company has yet to publish margins for 2020, though following the COVID-19 pandemic which disrupted operations, they are likely to be lower than the 4.8% hit in 2019.
Renault also said it was targeting automotive free cash flow of 3 billion euros by 2023, and 6 billion by 2025.
“At the margin the commitment to short-term cash targets is positive as it remains the key concern for investors,” Citibank analysts wrote in a client note. “The greater details around how Renault moves on to a sustainable footing is also welcome given Renault shares continue to trade at a marked discount to peers.”
The French carmaker said it would combine all its sports car efforts into one unit “dedicated to developing exclusive and innovative” vehicles and that Formula One racing would be “at the heart of the project.”
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