The Alliance is relaunched! After almost four years of crisis, the management of Renault and Nissan have resumed speaking and the bosses of the French group can now go to Tokyo without fear of being arrested… On the contrary, travel is increasing because, now that the plan of Renault’s recovery is producing its first effects (ahead), Luca de Meo, Renault’s managing director, seems to have taken the Alliance project as his new priority.
It must be said that the time for hesitation is over… The automotive market is sinking into crisis due to the shortage of semiconductors and the rise in raw materials. In addition, the war in Ukraine forced Renault to withdraw from the Russian market, de facto strengthening the weight of its Japanese ally, in which it owns 43% of the capital (against 15% in the opposite direction and without voting rights). And for good reason, Nissan sells twice as many cars as Renault, and its quotation is almost three times higher. On the one hand, the status quo is no longer possible, on the other, the end of the Alliance is not an option either.
“Certainly the balance of power is favorable to the Japanese camp, whose recovery is spectacular, but neither Renault nor Nissan can give up the Alliance. Renault must still make progress on its plan before considering going further in integration of the Alliance, or even of a merger which could be a long-term subject”, explains Frédéric Rozier, manager at Mirabaud.
Merger, or no merger, the debate still agitates the markets
The merger of the two has not finished debating the markets. For his part, Benjamin Sacchet, associate director and asset manager at Avant-Garde Investment, still considers the question of a merger premature: “political considerations continue to stand in the way of further integration of the Alliance”.
“Logic would dictate that Nissan should take a stake in Renault, but this must be done intelligently. Reason will eventually prevail in an extremely competitive context. The Stellantis merger demonstrates that it is possible and necessary”, underlines Frederic Rosier.
Recent rumors have reported discussions around different scenarios that could rebalance the Alliance. The question of a sale of part of the stake in Nissan has been raised. But Renault’s health is still too fragile to negotiate a rebalancing with Nissan, which is in better shape. Its recovery plan is far from complete and above all its valuation is very low. “Renault is currently undervalued… If we take the banking activities and the stake in Nissan alone, we are already on a valuation of 13 billion, while the capitalization does not exceed 7 billion euros on the market. “, observes Frédéric Rozier.
The “retinal persistence” of markets
At the General Meeting of Shareholders held on Wednesday, Jean-Dominique Senard (president of the group) assured that the capitalization did not reflect Renault’s potential and the progress of its restructuring plan. Luca de Meo, he invoked a “retinal persistence” which prevents investors from appreciating “the extent of the structural transformation” underway at Renault. Jean-Dominique Senard has also promised that this undercutting “trompe-l’oeil would fade (…) with the valuation of nuggets”.
This promise refers to the ambitious plan to spin off Renault’s electrical activities. It is a question of exfiltrating all activities related to electric cars in which Renault considers it has a comparative advantage due to an experience in this field of more than 10 years and a leadership on the European market thanks to the Zoé in particular . Nearly 10,000 employees, data and patents would thus be housed in this new structure which could be listed on the stock market. Renault would nevertheless retain control of this new entity.
“The idea of spinning off electrical activities is very relevant, it can help create value at a time when these structures are very popular on the market”, Judge Frédéric Rozier.
Renault relies on the appetite of the markets for all values purely oriented towards electromobility. In the United States, the smallest company that comes on the stock market with an electric car project has so far raised tens of billions of euros in a few hours before even having produced a single one: Rivian, Lucid… Not to mention of Tesla which reached new heights last year with a capitalization of 1,000 billion dollars.
“Renault obviously cannot hope for the excess valuations that we find across the Atlantic on a Lucid Motors or a Rivian, it is however easier to justify a significant lifting on the basis of these comparables”, puts Benjamin Sacchet into perspective.
Other market observers who remained anonymous, however, estimated that such a spin-off could be valued between 5 and 10 billion… “Spin-off can allow Renault to find room for maneuver which it does not currently have”, confirms Benjamin Bag.
It is also in this same state of mind that Renault is working on a spin-off of activities related to the thermal powertrain. On the one hand, this would relieve the group of the impact that this has on future prospects, given the timetable for the end of thermal cars in Europe. On the other hand, it could be valued for its interest in emerging markets which have not programmed such environmental agendas, such as Africa, the Middle East, Latin America or even part of Asia. “The market always prefers pure assets, this induces a precise vertical risk”, explains Benjamin Sacchet.
A JV with Nissan so as not to touch the Alliance?
Markets are eagerly awaiting the finalization of spin-off plans, and many are betting on joint ventures with Nissan. “The plan to spin off Renault’s electrical activities is probably the subject of fierce discussions with Nissan. It would be entirely consistent for them to pool certain activities and patents and then use this potential operation to rebalance the levels of participation “, anticipates Benjamin Sacchet. Such a scenario would thus make it possible to avoid the pitfall which would consist of touching on cross-shareholdings, an explosive and highly politicized file. In the meantime, the Alliance is making great strides, observes Frédéric Rozier: “the industrial integration projects underway in the Alliance have never been so advanced. This is very promising for Renault”.