Renault CEO questions wisdom of electric vehicle price cuts

Renault CEO Luca de Meo on Thursday questioned the wisdom of price cuts rivals have been implementing in a bid to bolster market share for their electric vehicle fleets.

“We’ve seen competitors moving prices up and down, etc., etc. this is their decision. But I don’t think it’s a very healthy practice in the long term,” he told CNBC.

“As electric cars are ramping up in Europe, we need to have a healthy business, and so, in the case of Renault, the last thing I’m going to do is to compromise on the margins, you know, of electric cars.”

De Meo’s comments follow a string of aggressive price drops announced by automakers Tesla and Ford amid pressure to remain competitive in a burgeoning EV market.

Tesla threw down the gauntlet with its mid-January announcement of price reductions for U.S.-marketed models across the board and for its Model 3 and Model Y within Europe. Ford followed on Jan. 30 with price trims for its electric Mustang Mach-E crossover.

However, De Meo signaled that sales price volatility could erode consumer confidence in EV products.

“Our priority will be to defend the value for the customer,” he said. “Because those kinds of swings are kind of value destroying for the customer, think about residual value, etc.”

Renault’s long-term allies are joining the French automaker’s EV push, with Nissan earlier this month pledging to buy a stake of up to 15% in Renault’s electric unit Ampere as part of a broader overhaul of the companies’ 24-year union. Under the reshaped, previously lopsided alliance, Renault will reduce its shareholdings in Nissan from roughly 43% to 15%.

“My job is to make the Ampere case so interesting for them [Nissan and junior alliance partner Mitsubishi] that they will decide in their capital allocation meetings to put money there and not in an alternative project,” he told CNBC, adding that the investment was not a condition of the restructure.

Earlier on Thursday, Renault reported that its group operating margin doubled to 5.6% in 2022 from 2.8% a year prior, even as net income swung to a 700 million euro ($748 million) loss. It came after the company in May wrote off a 2.3 billion euro impairment linked to exiting its Russian positions.

Renault posted record cash flow of 2.1 billion euros last year, compared with its guidance of above 1.5 billion euros. Net income from continuing operations increased to 1.6 billion euros, from 549 million euros in 2021, while group revenues inched up to 46.4 billion euros in 2022, from 41.7 billion euros a year prior.

Renault shares were largely steady at 1 p.m. London time, down modestly in intraday trade at 42.96 euros.

De Meo said he sees ongoing longevity in the supply and logistical obstacles that have plagued automakers since the onset of the Covid-19 pandemic, especially linked to the yearslong global shortage of semiconductor chips.

“We think that, on the semiconductors, [it] is going to continue to be pretty much of a challenge for another couple of years, especially on the kind of semiconductors that we use in the automotive industry,” De Meo told CNBC, estimating that logistical and component hurdles led Renault to underproduce by 300,000 cars in 2022.

He forecast similar losses in 2023.

“So it’s going to stay there. But I think we are a little bit more prepared. We know how to find the parts and how to organize production to keep doing it. But we have to recognize that this is not going to be, again, a normal year,” De Meo added.

Despite this outlook and a “still challenging environment,” Renault targets a group operating margin at or above 6% in 2022, along with operational free cash flow at or above 2 billion euros.

It also put forward a dividend of 25 euro cents per share for fiscal 2022 — marking the company’s first payout proposal in four years, according to Reuters — due to be paid in May, if approved during the company’s annual general meeting in the same month.

Correction: De Meo forecast similar production losses in 2023. An earlier version misstated the year.