how the spin-off of electrical activities can save the Alliance

The Alliance is relaunched! After almost four years of crisis, the management of Renault and Nissan have spoken again and the bosses of the French group can now go to Tokyo without fear of being arrested… On the contrary, travel is increasing because, now that the plan de Renault’s recovery is producing its first effects (ahead), Luca de Meo, managing director of Renault, seems to have taken on the Alliance project as his new priority.

It must be said that the time for hesitation is over… The automotive market is sinking into crisis due to the shortage of semiconductors and the increase in raw materials. Furthermore, the war in Ukraine forced Renault to withdraw from the Russian market, in fact reinforcing the weight of its Japanese ally, in which it holds 43% of the capital (against 15% in the opposite direction and without voting rights). And for good reason, Nissan sells twice as many cars as Renault, and its price is nearly three times higher. On the one hand, the status quo is no longer possible, on the other hand, the end of the Alliance is not an option either.

“Certainly the balance of power is in favor of the Japanese camp, whose recovery is spectacular, but neither Renault nor Nissan can give up the Alliance. can be a long-term issue”, explains Frédéric Rozier, manager of Mirabaud.

Merger or not to merge, debate still stirs markets

The merger of the two did not stop debating the markets. For his part, Benjamin Sacchet, associate director and asset manager at Avant-Garde Investment, still considers the question of a merger premature: “political considerations continue to prevent further integration of the Alliance”.

“Logic would dictate that Nissan should have a stake in Renault, but this must be done intelligently. Reason will eventually prevail in an extremely competitive context. The Stellantis merger demonstrates that it is possible and necessary”, underlines Frederic Rosier.

Recent rumors have reported discussions around different scenarios that could rebalance the Alliance. The issue of selling part of the stake in Nissan was raised. But Renault’s health is still too fragile to negotiate a rebalance with Nissan, which is in better shape. Its recovery plan is far from complete and, above all, its valuation is very low. “Renault is currently undervalued… If we only take the banking activities and the stake in Nissan, we are already valued at 13 billion euros, while the market capitalization does not exceed 7 billion euros”, observes Frédéric Rozier.

The “retinal persistence” of markets

At the General Shareholders’ Meeting held on Wednesday, Jean-Dominique Senard (chairman of the group) assured that the capitalization did not reflect Renault’s potential and the progress of its restructuring plan. Luca de Meo, invoked a “retinal persistence” that prevents investors from appreciating “the extent of the structural transformation” underway at Renault. Jean-Dominique Senard also promised that this undercutting “trompe-l’oeil would disappear (…) with the appreciation of the nuggets”.

This pledge refers to the ambitious plan to spin off Renault’s electric activities. It is about exfiltrating all activities related to electric cars in which Renault considers it to have a comparative advantage due to an experience in this field of more than 10 years and a leadership in the European market thanks to Zoé in particular. Around 10,000 employees, data and patents would be housed in this new structure that could be listed on the stock exchange. Renault, however, would retain control of this new entity.

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

trillions of Tesla

Renault counts on the markets’ appetite for all purely electromobility-oriented values. In the United States, the smallest company to go public with an electric car project has already raised tens of billions of euros in a few hours before even producing a single one: Rivian, Lucid… Tesla, which peaked last year with a capitalization of 1,000 billion dollars.

“Renault obviously can’t wait for the excessive valuations we find across the Atlantic on a Lucid Motors or a Rivian, however it is easier to justify a significant increase based on these comparables,” Benjamin Sacchet puts in perspective.

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

It is also in this same frame of mind that Renault is working on a spin-off of activities related to the thermal powertrain. On the one hand, this would relieve the group of the impact it has on future prospects, given the timetable for the end of thermal cars 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 pure assets, this induces a precise vertical risk”, explains Benjamin Sacchet.

A JV with Nissan not to touch the Alliance?

Markets are eagerly awaiting completion of spin-off plans, and many are betting on joint ventures with Nissan. “The plan to spin off Renault’s electrical activities is likely to be the subject of heated discussions with Nissan. It would be totally coherent for them to group certain activities and patents and then use this potential operation to rebalance the levels of participation”, anticipates Benjamin Sacchet. Such a scenario would thus make it possible to avoid the trap of touching cross-participations, an explosive and highly politicized dossier. Meanwhile, the Alliance is making great strides, observes Frédéric Rozier: “the industrial integration projects underway in the Alliance have never been more advanced. This is very promising for Renault”.