Company Reports

Renault's first-half automotive revenue rose 9.3% year over year, or 10.2% at constant exchange rates, while the operating margin declined to 3% from 4%. Full-year guidance is maintained, implying a stronger second half.

After the sudden departure of its CEO, Luca de Meo, in mid-2025, who was responsible for the excellent execution of the "Renaulution" turnaround strategy, we believe the appointment of Renault stalwart François Provos as CEO, whose key messaging is continuity, is the right appointment given industry volatility. Provos’ “Future Ready” strategy sticks to the same key pillars of pushing product innovation, strengthening partnerships to leverage scale benefits, growing internationally, and protecting the balance sheet. Where we see increased emphasis in the current strategy is the need for cost reduction, with the goal of being competitive on cost with Chinese rivals. We believe this is critical, particularly on the lower end of the value spectrum in which Renault operates.

Renault reported first-quarter automotive revenue of EUR 10.8 billion, up 6.5% year over year despite a 3.3% global volume contraction tied to one-off production disruptions at Dacia, exceeding market expectations. Guidance for the full year was reaffirmed.

Renault reported fourth-quarter revenue and volume growth of 1.6% and 2%, respectively. Full-year group operating margin of 6.3% fell 130 basis points, pressured by adverse pricing, mix, and FX. A muted outlook for 2026 and midterm targets likely weighed on the stock, down 3% on the announcement.

The European Union has softened its emission-reduction targets for the auto sector and initiated support for electric vehicle demand. By 2035, carmakers need to reduce emissions by 90%, down from the previous 100% target. For vans, the CO2 reduction target has been cut to 40% from 50% by 2030.

Renault reported an acceleration in third-quarter revenue and volume growth, increasing 6.8% and 9.8%, respectively. Passenger car sales volumes in Europe recorded a strong performance, increasing 10.9% versus market growth of 7.5%, despite the increasingly competitive environment.

For the auto segment, revenue grew 0.5% and operating profit declined 38%, resulting in operating margin declining to 4% in the half-year result from 6% the year prior. Group margin guidance for the full year implies auto margin returning to margin levels in the second half of last year.

After the sudden departure of its CEO, Luca de Meo, in mid-2025, who was responsible for the "Renaulution" turnaround strategy, we believe the appointment of Renault stalwart François Provos as CEO, whose key messaging is continuity, is the right appointment given industry volatility, and the current strategy makes sense. Having promptly achieved the targets of the Renaulution strategy, launched in 2021, the next phase of Renault’s strategy, called “Futurama,” was shared at the start of 2025. This next stage focused on pushing product innovation, strengthening partnerships to leverage scale benefits, and investigating adjacent opportunities to reduce the firm's cyclicality through the cycle.

Renault has revised its full-year targets downward, reducing its operating margin expectation to around 6.5% from greater than 7% and its free cash flow to EUR 1 billion-EUR 1.5 billion from more than EUR 2 billion. A weaker-than-expected performance in June being the explanation for the miss.

Renault is changing the accounting of its shareholding in Nissan from equity method accounting to one that recognizes its shareholding as a financial asset measured at fair value. It will recognize an upfront noncash loss of EUR 9.5 billion. Operational collaboration between the firms is unchanged.

Renault's CEO, Luca de Meo, has announced his decision to leave the carmaker, effective July 15, to pursue a new turnaround challenge outside of the auto sector.

Renault and Nissan have announced several updates regarding their strategic partnership. We believe this announcement is positive for Renault on multiple fronts. We make no changes to our fair value estimate of EUR 80 per share, as we have already incorporated higher growth in Asia over the medium term, and Renault has maintained its 2025 guidance for free cash flow and operating margin following these transactions.

The three-phased "Renaulution" strategy was launched in 2021 after the company reported a loss of over EUR 8 billion in 2020 and lost its investment-grade status. The execution has been excellent so far. Return on invested capital, however, still falls below their weighted average cost of capital.

We are revising our fair value estimate slightly for no-moat Renault down to EUR 80 from EUR 85 per share as we roll our model forward, incorporating an additional year of midcycle margins, which we forecast to return to historical average levels of low single digits rather than the high single digits currently being achieved.

Battery electric vehicle sales stalled in the US and Europe in 2024 after a postpandemic rise. With sales growing in China and globally, many companies throughout the EV supply chain stand to benefit from the transition to EVs.

The EU Commission released its automotive industry action plan on March 5. While we commend the flexibility provided for carbon dioxide targets, we think the remaining proposals lack details, timelines, and regulatory enforcement. The positive share price moves of the European auto original equipment manufacturers appear to reflect the reversal of expected CO2 emission penalties. We make no changes to our fair value estimates for the European automakers.

The European Union launched a strategic analysis on how to safeguard the future of the European automotive industry on Jan. 30. The results of this investigation are expected to be released on March 5. The investigation aims to provide the industry with support to curtail accelerating job losses and declining contribution to the European Union's gross domestic product. In contrast to the Chinese auto industry, which has soared because of a focused and coordinated regulatory framework, European policy has been contradictory and uncertain in particular areas. We believe European auto industry stocks are pricing in worst-case scenarios and therefore trading at deep discounts to their fair values. We see potential short-term and longer-term profitability improvements to result from a supportive and coordinated regulatory policy.

No-moat Renault reported a strong result for 2024, an exception among the European mass-market automotive original equipment manufacturers. Group revenue rose 7.4% (9% at constant currency) and underlying operating income (excluding the hit from the Horse deconsolidation) increased 14.6%, delivering an operating margin of 7.4% in 2024 versus 6.9% in 2025. Net income declined materially on noncash recognition of losses from the sale of Nissan shares, as well as a partial impairment of remaining shares. Free cash flow of EUR 2.9 billion reflects a free cash flow margin of over 5% and cash conversion ratio greater than 100%. Strong cash flow supported growth in the automotive net cash position to EUR 7 billion in 2024 from EUR 3.7 billion in 2023. A dividend will be paid from net income, adjusted for the Nissan-related losses and impairments, with Renault declaring a EUR 2.20 dividend per share, up 19% year over year.

No-moats Nissan and Honda have announced talks of a possible merger. With no-moat Renault being Nissan’s largest shareholder, Renault will be instrumental to the transaction. We view such a merger as positive for Renault. A merged entity would benefit from greater scale. Nissan has lost meaningful scale since before the covid pandemic, with sales volumes having declined to 3.4 million in 2023 from 4.9 million in 2019 (5.5 million in 2018.) Nissan has struggled to cut costs fast enough to match this now lower scale. Combined with Honda’s 2023 3.7 million vehicle sales, the merged entity would surpass the scale of the Hyundai-Kia partnership's vehicle sales of 7.3 million in 2023, making it the third largest global automotive original equipment manufacturer. There is also market talk about the inclusion of Mitsubishi into a final merged entity.

Following President-Elect Donald Trump's call for a 25% import tariff on vehicles manufactured in Mexico and Canada, making it economically unviable to sell cars produced in these two countries to the US, we examine European auto original equipment manufacturers' US production footprints relative to their share of sales in the US. A "positive misalignment" suggests greater exposure to import tariffs and potentially, the need for increased capital expenditure on US-based production plants over the medium term. We estimate Stellantis and Volkswagen are most at risk, followed by Porsche.