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Renault reaps rewards from early move into EVs, sets sights on Chinese market

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Renault reaps rewards from early move into EVs, sets sights on Chinese market

Renault to continue offering batteries via lease due to the scheme's popularity with outright sales available in some markets.

Europe may be better off focusing on developing next-generation battery technologies rather than wresting lithium-ion market share from Asia.

Increasing market share in Chinese market is a top priority for Renault given size and popularity of electric vehicles.

Renault SA has been a pioneer in electric vehicles since launching its Zoe hatchback in 2012, plug-in Kangoo van and half-car, half-scooter Twizy. With a design that customers say still looks contemporary in its eighth year, the ZOE has reclaimed the top spot as Europe's fastest selling EV. S&P Global Market Intelligence sat down with Gilles Normand, Renault's senior vice president of its Electric Vehicles Business Unit at the Geneva Motor Show to ask where to now for the French automaker as electric car demand accelerates.

S&P Global Market Intelligence: Renault has unusually leased rather than sold most of the batteries in its electric cars. As customers gain trust in electric vehicle (EV) technology and as battery costs fall, will you end the leasing model?

Gilles Normand: We started leasing batteries because people needed reassurance about battery life and durability and to reduce the car's sticker price. After five years, people were saying "we know your batteries are safe and have good durability so why don't you offer the battery for purchase?" We did in a number of countries and yet we still sell 70% of our EVs like ZOE in Europe with a leased battery. Battery durability is better than we initially modeled, which is good news for everybody. Eventually, the entire market will go probably to the full leasing scheme (of the car as well as the battery), which is becoming more of a standard practice in the industry.

The ZOE is now in its eighth year. Has its price come down since its launch?

The price of the ZOE isn't falling because we have been significantly improving it. When we introduced the new ZOE in 2016, we doubled the range so we gave much more value to the customer even if we did increase the price a little bit. The new ZOE is a huge success. Volume is up 40% so far this year. The car is getting a lot of traction because it now has more than 300 kilometers (186 miles) real-world driving range. At that range, you go beyond the needs of the ecologically motivated customer and people seeking to save on taxes and you enter the territory of the rational buyer. The residual value of EVs will only go up, while those of diesel cars today are going down so customers are attracted by this.

Is Renault making a profit on the ZOE?

On a marginal cost basis, we are making a profit, but the aim is to become competitive on everything including the development cost. We are not yet paying back the initial costs to develop it, but with the next generation ZOE we will be definitely. In 2022, our objective is to be on par with average group profitability with our EVs, which is about 7% measured on a full-cost basis including development cost.

Are sales of the ZOE very sensitive to changes in government policies and grants, etc.?

We are asking for there to be not too much change in government incentives because people take time considering whether to purchase an EV so stability in this segment is quite important. In France, we are quite fortunate because the government just confirmed that it will maintain its incentive at €6,000, and there is €4,000 in Germany. It is important because moving to e-mobility is not yet a natural shift. You need a little bit of motivation to get there.

Overall, has Renault benefited by being an early mover in EVs or would it have been better off waiting for rivals to lay the foundations of this market?

I think it is fair to say we are already reaping the gains because a number of our competitors are coming to EVs now with their backs to the wall, pushed by regulation or by customer sentiment, and they are in a bit of a rush pouring in a huge investment to catch up, but this is something we have been preparing for and building up in the last 10 years.

The French and German governments have pledged €1.7 billion to spur European lithium-ion cell production. Are you keen to bring your battery purchasing to Europe?

Today we are importing batteries mainly from Korea, but if we can have a European champion able to be cost competitive with durability and safety, obviously we are interested. The Koreans and Chinese are way ahead with lithium ion so I don't think we should try to catch up. It is better to jump to the next generation technology, which is all solid state batteries.

Peugeot just announced it is considering a return to the United States' market. Does the small but fast-growing market for EVs provide an opportunity for Renault to do the same?

We want to go to China because China is a very small market for us right now and this is the number one market in the world. Our first priority is China. We can speak about the United States but at a much later stage, not during our "Drive the Future" strategic five-year plan that runs until 2022.