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Renault turnaround plan aims to flush out costs, focus on EVs, mobility tech

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Renault turnaround plan aims to flush out costs, focus on EVs, mobility tech

Renault SA's new CEO Luca de Meo on Jan. 14 revealed a fresh strategy for the French automaker that will focus on electrification, profit margins over sales volumes and cost savings by basing all new products on just three platforms.

The company aims to achieve a 3% group operating margin and €3 billion of cumulative automotive operational free cash flow by 2023, rising to 5% and €6 billion by 2025, in part by cutting R&D spending to 8% of revenue from about 10%.

At the same time, it will reduce annual production to 3.1 million units by 2025 from the 4 million made in 2019 and lower its breakeven threshold to 30%, aided by a €600 per vehicle reduction in variable costs.

The strategy, dubbed "Renaultlution," aims to stem sliding profits at the carmaker, a medium-sized player in global terms and build on a plan announced in 2020 to share responsibilities and geographic regions with alliance partners Nissan Motor Co. Ltd. and Mitsubishi Motors Corp.

"The Renaultlution is about moving the whole company from volumes to value. More than a turnaround, it is a profound transformation of our business model. We've set steady, healthy foundations for our performance," de Meo said.

"We'll move from a car company working with tech, to a tech company working with cars, making at least 20% of its revenues from services, data and energy trading by 2030."

Marking the depth of change at the company, Renault revealed a redesigned logo, retaining the diamond shape but restoring the grooved look of its original badge.

The highlight product unveiled at the strategy day was a prototype of a Renault 5, resurrecting its iconic small hatchback that launched in 1972 and was sold until the mid-1990s with only one major update. The company said its production has not been confirmed but that the concept aimed to make it affordable to many buyers.

Renault's low-cost Dacia brand will expand into larger "C segment" models, which CFO Clotilde Delbos said would offer the potential to increase the brand's already-strong margins. Dacia will also tighten ties with Renault's Russian subsidiary Lada, generating product development synergies through a joint reliance on a single platform rather than the four currently used.

Confounding expectations that dealerships would be threatened by the low maintenance requirements of electric vehicles, de Meo said Renault's electric cars are in fact boosting this revenue stream because EV owners are more likely to seek servicing at an official Renault garage than traditional car owners.

At the same time, Delbos noted that interest in owning cars is on the decline as other models such as leasing and subscription grow in popularity.

A standout feature within Renault's strategy, at least among European peers, is its push into hydrogen fuel cell technology alongside battery-electric products, reinforced by its new joint venture with U.S.-based hydrogen specialist Plug Power Inc. De Meo said this would leave the company well positioned given the likelihood of growing regulatory pressures on diesel powertrains in passenger cars and heavy goods vehicles.

He said the company had managed to halve the price of the battery pack in its flagship electric car, the ZOE hatchback, boding well for the prospects of more affordable EVs. The company aims to make its forthcoming Dacia Spring SUV Europe's most affordable electric car and said the margin contribution of its EVs was now higher than for combustion engine cars, but dilutive overall.

Renault has launched a new brand for its mobility services, Mobilize, which will expand alternatives to car ownership such as subscription, leasing, car sharing and pay-as-you-go models, underpinned by a dedicated software platform. Renault will launch two purpose-designed vehicles for car sharing, another specifically for ride-hailing services and one for last-mile delivery. In a shift toward a circular economy approach, Mobilize will feature a "re-factory" for refurbishment purposes as well as maintenance.

Renault's Paris-traded shares closed 1.1% lower at €35.43.