Just like Ford, Luca De Meo wants to shift from volume to value.
After we wrote about how Ford closing Brazil’s plants had to do with its plan to finance its shift to electric mobility, Renault kind of confirmed that’s the way to go with its Renaulution strategic plan. Luca de Meo's main goal is to shift Renault’s focus from volume to more profitability. The company intends to get there with electrification and towards it. Although this may seem weird, it isn’t.
Renault already has a lead in Europe when it comes to electric cars. The ZOE is its best selling EV, and Renault plans to expand the electric lineup by offering “at least ten full EVs.” The company also confirmed it would bring back some of its most iconic vehicles as new electric cars, such as the Renault 5.
FCA did this with the 500, a car that De Meo helped bring back to life when he worked for Fiat, still with a combustion engine at the time. The executive knows the powerful emotional connection these vehicles can have with customers.
By focusing on more profitable cars, Renault will manage to fund investments in new electric products. These cars would offer a "higher margin contribution than ICE (in €)," according to the company. The idea seems to be creating a virtuous circle: invest in EVs to make more money, use this money to invest in new EVs and make the transition to electric mobility, and get more profitable in the process.
Coherently with that new strategy, Renault will no longer measure its success by “performance on market shares and sales but on profitability, cash generation, and investment effectiveness.”
De Meo said he wants to turn Renault “from a car company working with tech to a tech company working with cars.” His plan for the company is “making at least 20% of its revenues from services, data, and energy trading by 2030.” That does not remind us of Tesla by chance, be sure about it.
This is why Renaulution is divided into three phases. “Ressurection” will run until 2023 and focuses on margin and cash generation recovery. By that year, Renault intends to reach more than 3 percent of operating margin for the whole group, €3 billion of cumulative automotive operational free cash flow, and to lower investments to 8 percent from the current 10 percent of revenues.
While that seems to lower investments, think about it: 8 percent of 200 is more than 10 percent of 100. If Renault manages to be more profitable, it will have more money to invest in electrification even if the percentage is lower.
The Renault group will now be divided into four business units: Renault, Dacia-Lada, Alpine, and Mobilize. Alpine will become 100 percent electric, while Renault and Mobilize will get there in time.
Only Dacia-Lada seems to have room for combustion-engined cars in its plan, which is not great news for these companies. Their current business model is based on cheaper cars with higher volume sales.
Considering Renault now wants to avoid this, either Renault chose them as the ones to carry out the burden of previous investments in combustion engines, or they will go through the deepest changes in the plan to be able to survive.
In terms of management, Renault wants to lower fixed costs by €2.5 billion by 2023 and €3 billion by 2025. Variable costs should present a €600 improvement per car by 2023 – when the company expects to lower its break-even point by 30 percent.
To get there, Renault will have only three platforms on its cars from the current six – Dacia-Lada will have only one. The powertrains still in place will be reduced from eight to four, which shows that the idea is to get rid of them as soon as possible. All the cars yet to use the current platforms will be up for sale in the next three years.
Like Ford, Renault will cut its production capacity from 4 million units to 3.1 million cars by 2025 and focus on more profitable market segments in Latin America, India, and Korea. Ford phrased that as selling only SUVs and pickup trucks and closing factories. That could imply that A-segment vehicles such as the Renault Kwid are not in a safe position, as well as the K-ZE and its Dacia cousin, the Spring.
The next phase of the plan is called “Renovation.” It will extend until 2025, and its main goal is to boost profitability with “renewed and enriched lineups.” Renault did not get into much detail here apart from mentioning that it plans to launch seven new vehicles for the Dacia-Lada business unit (two of them in the C-segment) by 2025 and that Alpine will develop a new sports car with Lotus.
The final stage of Renaulution is called “Revolution.” From 2025 onwards, De Meo expects to fulfill his plan to turn Renault into a technology company that works with cars. To be even more clear about that, Renault said it would work with tech, energy, and mobility, probably by the order of importance the company plans to give to each of them.
Renault will have what it calls Software République to deal with the technology. The company says this branch will deal with key technologies from big data to cybersecurity.
When it comes to energy, Mobilize will be the business unit responsible for it, apart from offering carsharing and subscription services. Can we expect a network of Renaultcharges all over Europe? Solar panels from Renault? The company did not disclose its plans in that matter.
Summing up, Renault plans to become a European Tesla by following the same steps the American company has taken so far. That sounds like a plan.