Renault RNO -0.04% has had a terrible few years, culminating in the costly exit from Russia announced Monday. But if this latest crisis finally forces the French car maker—and its backseat-driving government shareholder—to rethink its capital allocation, all might be forgiven.
Renault on Monday said it would sell its roughly 68% stake in AvtoVAZ, Russia’s largest auto maker, to a Moscow-backed research center, as well as a wholly owned factory in Moscow to the local government. It will get a symbolic ruble for each asset, The Wall Street Journal reported. It has the option of buying back its AvtoVAZ shares within six years.
The company bet big on Russia under former Chief Executive Officer Carlos Ghosn amid a broader focus on emerging markets. It ended up taking a controlling stake in AvtoVAZ, maker of the iconic Lada brand, as part of a 2016 bailout when the Russian economy was reeling from low oil prices and a previous round of sanctions. After years of losses, the investment was finally paying off—AvtoVAZ generated about 15% of Renault’s total operating profit in 2021—when Russia’s invasion of Ukraine suddenly made it politically untenable.
Many of Renault’s previous problems stemmed from tensions with its global alliance partner Nissan. NSANY 0.56% When Mr. Ghosn was arrested in Japan in 2018, the ties between the two companies that he ran frayed. It still isn’t clear exactly what Renault gets from its substantial but noncontrolling 43% stake in Nissan. In some instances, such as the aborted merger with Fiat Chrysler in 2019, the Nissan link has appeared to be a brake on bold thinking.
Investors therefore value Renault at an even bigger discount to the sum of its parts than they do most car makers. Stripping out the Nissan stake at market value, Renault shares are currently worth just $615 million.
The good news is that the company under new Chief Executive Luca de Meo finally seems motivated to address the problem. Last month, Bloomberg reported that Renault was considering selling part of its Nissan stake to help fund the transition to electric vehicles. And last week, the company said it was studying the potential for creating new entities for EV and software activities on the one hand and non-French engine and transmission assets on the other. Each of these businesses would have about 10,000 employees out of a Renault total of roughly 110,000 after its exit from Russia.
Renault is valued by investors at an even bigger discount to the sum of its parts than most car makers.
Photo: REUTERS PHOTOGRAPHER/REUTERS
Plenty of questions remain unanswered about how far these deals will go, what purpose they would serve and how they will fit within the alliance with Nissan. The Japanese company last week told reporters it needed to better understand the plan. Renault also still seems to be heavily steered by the French government, which owns a 15% stake. Among the few details disclosed were the fact that the EV business (that is, the future) would be in France while the traditional powertrain business (the past) would involve assets outside France.
For all the uncertainty, it is clear Mr. de Meo is serious about shaking up Renault. The main objective would be to prepare the company for a very different future. Whether or not that works, portfolio moves could help to unearth the value buried in the company’s rock-bottom stock-market valuation. Mr. de Meo has said he would share more in a strategy day this fall.
Renault has drifted toward irrelevance for investors in recent years, but it might be a good time to start paying closer attention.
Write to Stephen Wilmot at [email protected]
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