Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Renault SA (RNLSY, Financial) achieved a record 8.1% operating margin in H1 2024, the highest in the company's history.
- The company generated EUR1.3 billion of free cash flow and reached a strong net financial position of almost EUR5 billion.
- Renault SA (RNLSY) reduced its cash fixed costs by EUR2.7 billion since H1 2019 and achieved over 90% utilization rate of its industrial footprint.
- The company has struck over 20 strategic partnerships with leading players in the automotive value chain, enhancing its strategic agility.
- Renault SA (RNLSY) is making significant strides in AI, aiming to become the first AI-powered automobile manufacturer, which is expected to enhance productivity and efficiency across all value chains.
Negative Points
- The company faces challenges in meeting the 2025 CO2 emission targets due to slower-than-expected EV market growth, particularly in Germany.
- There is increased pressure on pricing in the market, which could impact margins if not managed carefully.
- The deconsolidation of HORSE will result in a EUR330 million adverse impact on H2 2024 profits and cash flow.
- The cost of risk for Mobilized Financial Services remains a concern, especially with the deteriorating economic backdrop.
- Renault SA (RNLSY) needs more coordinated support from European countries to provide incentives for electric vehicles to meet emission targets.
Q & A Highlights
Q: Can you help us understand how Renault plans to handle European CO2 regulations and the impact of the 60% increase in HEV on average CO2 emissions in Europe?
A: Luca de Meo, CEO: The EV market is currently stuck at 15%, and to meet the 2025 targets, we need to be above 20%. Renault is well-positioned with a high mix of hybrids and new EV products. However, the industry as a whole may struggle to meet these targets without more flexibility or coordinated support from regulators.
Q: What is Renault's outlook on European demand and the competitive landscape, especially regarding pricing and inventory levels?
A: Luca de Meo, CEO: We are seeing orders grow due to new product launches, and our inventory levels are healthy. While there is pressure on EV sales due to market uncertainty, we remain focused on maintaining margins and generating cash rather than pushing volume.
Q: How does Renault view the impact of European tariffs on Chinese BEVs and the potential threat from Chinese PHEVs?
A: Luca de Meo, CEO: PHEVs are more suited to premium cars due to their high cost. While any push from competitors is a challenge, Renault is prepared with its own PHEV technology. However, we believe the future lies more in mild hybridization and EVs.
Q: Can you clarify the impact of HORSE on Renault's financials and why the margin guidance for the full year hasn't been raised?
A: Thierry Pieton, CFO: The deconsolidation of HORSE has a significant impact, with a EUR330 million headwind expected in H2. Despite this, we expect H2 margins to be better than H1 in absolute terms. The guidance remains conservative due to this impact.
Q: What are Renault's plans for the proceeds from the sale of Nissan shares, and could some of this be returned to shareholders?
A: Thierry Pieton, CFO: Our priority is to return to investment-grade rating. Once achieved, we will have a transparent dividend policy targeting a 35% payout ratio. The proceeds from Nissan share sales will be used to support this strategy.
Q: How is Renault leveraging AI to improve productivity, and what are the expected benefits?
A: Luca de Meo, CEO: AI is embedded in core processes, from development to manufacturing. We expect productivity gains of 15% in R&D, which will be used to both reduce costs and invest in new technologies. This approach is already generating significant value.
Q: What is Renault's strategy for maintaining pricing power in a competitive European market?
A: Luca de Meo, CEO: We focus on value and quality rather than volume. While there is pressure on pricing, we use cost savings to offer competitive products without sacrificing margins. Our high utilization rates and strong order book support this strategy.
Q: Can you provide more details on the launch and customer reception of the Renault 5 EV?
A: Luca de Meo, CEO: The Renault 5 will start deliveries in October, with production ramping up well. Early interest is strong, and we expect to see its full potential by mid-2025. The car has a unique proposition with limited competition in its segment.
Q: What is Renault's outlook for the light commercial vehicle (LCV) segment?
A: Luca de Meo, CEO: We expect continued strong performance in LCVs, especially with the launch of the new Master, which is a key cash generator. This segment remains a significant contributor to our overall profitability.
Q: How does Renault plan to address the potential challenges in meeting CO2 emission targets by 2025?
A: Luca de Meo, CEO: We are calling for a coordinated European strategy to support EV adoption and infrastructure development. Flexibility in regulations, similar to what was done in 2020, could help the industry meet these ambitious targets without incurring significant fines.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
