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Renault Chief Plots Budget-Car Push With No Lift From Tesla Halo

September 04, 2013

Renault SA Chief Executive Officer Carlos Ghosn

Renault SA Chief Executive Officer Carlos Ghosn said in an interview, “If there’s one segment of the market which is going to have tremendous growth, it’s the entry level” because of the development of emerging markets and more cost-conscious consumers in southern Europe. Photographer: Simon Dawson/Bloomberg

Renault SA (RNO) Chief Executive Officer Carlos Ghosn is pinning growth efforts on rising demand for budget cars as his push into higher-priced electric vehicles comes up short.

Renault and its alliance partner Nissan Motor Co. (7201) won’t reach a target of selling a total of 1.5 million electric cars by 2016 as planned, Ghosn, an early proponent of battery-powered cars who also heads the Japanese manufacturer, said in an interview this week.

That makes Renault’s Romania-based Dacia brand even more critical as France’s second-largest carmaker seeks to reduce its dependence on sales of mid-range cars in the downtrodden European market.

“If there’s one segment of the market which is going to have tremendous growth, it’s the entry level” because of the development of emerging markets and more cost-conscious consumers in southern Europe, Ghosn said over lunch at Renault’s headquarters in the Paris suburb of Boulogne-Billancourt. “Dacia has done very well in this environment and will continue to do very well.”

Ghosn vowed to stick to a strategy of pushing for synergies with Nissan and expanding internationally after reorganizing Renault’s management yesterday. The creation of two board functions to oversee vehicle development and sales gives the 59-year-old more control of day-to-day operations following last week’s departure of Chief Operating Officer Carlos Tavares, who said he had CEO ambitions outside the company.

Execution Speed

“Our concerns are not strategic,” said Ghosn, who eliminated the COO position as part of the reorganization. “It’s much more about how to execute and at what speed to go.”

Renault will show its latest efforts to win budget-oriented consumers when it unveils the revamped Dacia Duster at the International Auto Show in Frankfurt next week. The current version of the sport-utility vehicle starts at 10,490 euros ($13,800), less than half the price of the Volkswagen Tiguan.

The manufacturer has fared better in the European crisis than larger French competitor PSA Peugeot Citroen (UG) because of the cooperation with Nissan and an earlier shift away from mid-market cars, which are being squeezed as Bayerische Motoren Werke AG and other luxury-car makers push into the segment. The 14-year-old production and sales alliance with Nissan has generated 2.7 billion euros in savings for the companies.

“Nissan and Dacia were fantastic strategic decisions” under Ghosn’s reign, said Jens Schattner, an analyst at Macquarie Europe Ltd. in Frankfurt. “Electric vehicles haven’t been a success for the time being.”

Delayed Target

Combined, Renault and Nissan -- the global leaders in battery-powered cars -- sold just 68,000 electric vehicles last year. Consumers have balked at the higher price for the models because the range is about one quarter of a conventional auto and recharging can take hours.

While the shift into electric cars has been good for the image of the brands, the 1.5 million sales target won’t be reached until after 2016, Ghosn said, without naming a new date.

Tepid demand for the cars hasn’t stopped the share price of Tesla Motors Inc. (TSLA:US) from rising fivefold this year. The maker of the Model S electric car has a market value of $20.8 billion, roughly on par with Renault’s. The stock of the French company has gained 31 percent in 2013.

“The industry as whole is very much still struggling with finding a recipe for core electric vehicles,” said Christian Stadler, a management professor at the University of Warwick in Coventry, England. “Renault was betting on the right horse but maybe they weren’t able to rein in ambitions far enough.”

Solid Ground

Renault plans to update its mid-term growth strategy by the end of the year. The investment plans will be backed by an agreement with French unions that runs to 2016 as the European market stabilizes after six consecutive years of decline.

There’s no longer “this feeling that the ground is collapsing beneath your feet,” said Ghosn. A return to pre-crisis levels though is “going to take some time because fundamentally, structurally, the changes have not been made” in Europe.

With industrywide car sales set to rebound only slowly, a push for savings with Nissan is critical for Renault to compete with Volkswagen, Peugeot and Hyundai Motor Co. (005380)

Renault and Nissan are aiming to increase total savings to 4 billion euros by 2016. While Ghosn is the main link between the two companies, the alliance is formalized with cross-shareholdings -- Renault holds 43 percent of Nissan, while Nissan owns 15 percent of Renault.

Even if the Renault-Nissan alliance appears loosely knit, the integration between the two manufacturers has made strides like combining purchasing efforts and sharing vehicle platforms, the CEO of both carmakers said.

“Today, I’m doing things in terms of synergies between the two companies that I would have been completely unable to do 10 years ago,” said Ghosn.

To contact the reporter on this story: Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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