Renault-Nissan: how spin-off electrical activities can save the Alliance

Avec Mégane E-Tech, Renault espère retrouver son leadership sur la voiture électrique.

The Alliance is relaunched! After almost four years of crisis, the Renault and Nissan executives have spoken again, and the French group’s chiefs can now leave for Tokyo without fear of arrest … that Luca de Meo, CEO of Renault, has taken the Alliance project as its new priority.

Needless to say, the hesitation period is over … The car market is falling into crisis due to a shortage of semiconductors and an increase in raw materials. In addition, the war in Ukraine forced Renault to withdraw from the Russian market, thus de facto strengthening the weight of its Japanese ally, in which it owns 43% of the capital (compared to 15% in the opposite direction and without voting rights). And for good reason, Nissan sells twice as many cars as Renault, and its offer is almost three times higher. On the one hand, the status quo is no longer possible, on the other hand, the end of the Alliance is out of the question.

“The balance of power is certainly good for the Japanese camp, whose recovery is spectacular, but neither Renault nor Nissan can give up the Alliance. Renault still needs to move forward before considering continued Alliance integration, or even a merger that could be a long-term Frédéric Rozier, Mirabaud’s manager, explains.

Mergers, or no mergers, debate still agitate markets

The merger of the two markets is not over. Benjamin Sacchet, Deputy Director and Asset Manager at Avant-Garde Investment, still considers the issue of the merger to be 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. In an extremely competitive context, reason will eventually prevail. The Stellantis merger shows that this is possible and necessary,” emphasizes Frederic Rosier.

Recent rumors have led to discussions about various scenarios that could rebalance the Alliance. The issue of the sale of part of the stake in Nissan was raised. But Renault’s health is still too fragile to negotiate a new balance with Nissan, which is in better shape. His recovery plan is far from complete and, above all, his appreciation is very low. “Renault is currently undervalued … If we take banking activities and a stake in Nissan alone, we are already valued at 13 billion, with a market capitalization not exceeding 7 billion euros,” notes Frédéric Rozier.

“Retinal persistence” of markets

At the general meeting held on Wednesday, Jean-Dominique Senard (group president) assured that the capitalization did not reflect Renault’s potential and the progress of its restructuring plan. Luca de Meo invoked “retinal perseverance”, which prevents investors from appreciating the “extent of the structural transformation” taking place in Renault. Jean-Dominique Senard also promised that this undercutting “trompe-l’oeil would disappear (…) with the appreciation of the nuggets.”

This promise refers to Renault’s ambitious plan to separate its electrical activities. It is an filtering of all activities related to electric cars, in which Renault considers it a comparative advantage thanks to more than 10 years of experience in this field and a leading position on the European market, especially thanks to Zoé. Nearly 10,000 employees, data and patents would thus be placed in this new structure, which could be quoted on the stock market. Renault would still retain control of this new entity.

“The idea of ​​separating electrical activities is very relevant, it can help create value at a time when these structures are very popular in the market,” Judge Frédéric Rozier said.

Teslov trillion

Renault relies on market appetite for all purely electromobility-oriented values. In the United States, the smallest company to enter the stock market with an electric car project has so far won tens of billions of euros in a few hours before producing one: Rivian, Lucid … Not to mention Tesla, which reached new heights last year with a capitalization of $ 1,000 billion.

“Renault clearly can’t hope for the over-valuations we find across the Atlantic at Lucid Motors or Rivian, but it’s easier to justify a significant rise based on these comparable values,” says Benjamin Sacchet.

However, other market observers who remained anonymous estimated that such a spin-off could be valued at between 5 and 10 billion … “Spin-off can allow Renault to find room for maneuver that it does not currently have,” confirms Benjamin Bag .

In the same state of mind, Renault is also working to split off thermal-related activities. On the one hand, it would deprive the group of the impact it has on future prospects, given the timetable for the end of thermal trucks in Europe. On the other hand, it could be valued for its interest in emerging markets that have not programmed such environmental agendas, such as Africa, the Middle East, Latin America or even parts of Asia. “The market always prefers net assets, which creates a precise vertical risk,” explains Benjamin Sacchet.

JV with Nissan not to touch the Alliance?

Markets are eagerly awaiting the completion of spin-off plans, and many are betting on joint ventures with Nissan. “The plan to separate Renault’s electrical activities is probably the subject of heated discussions with Nissan. It would be perfectly consistent for them to pool certain activities and patents and then use this potential operation to restore a balance between levels of participation, ”assumes Benjamin Sacchet. Such a scenario would thus avoid the pitfalls of touching on cross-stocks, an explosive and highly politicized ensemble. Meanwhile, the Alliance is making great strides, notes Frédéric Rozier: “The industrial integration projects under way in the Alliance have never been so advanced. This is very promising for Renault. “