Renault/Nissan: rare opportunity to reshape troubled alliance

Renault boss Luca de Meo has steered the French vehicles group competently since he took the wheel in 2020. Hopes are rising he can now get past a recurring roadblock: a fraught relationship with Japanese alliance partner Nissan. Reports of “trustful discussions” about the alliance’s future sent Renault’s share price up 5 per cent on Monday.

There is plenty to discuss. Renault wants Nissan to agree to its plan to offload part of its combustion engine business — codenamed “Horse” — to China’s Geely. It also hopes Nissan will invest in Renault’s proposed electric vehicle unit, internally known as “Ampère”. The restructuring would be aimed at boosting valuations, sharpening decision-making and improving access to capital.

In return, Nissan is pushing Renault to reduce its current 43.4 per cent stake, possibly to as little as 15 per cent. Nissan would then no longer be deemed to be under Renault’s control. That might allow the Japanese group to exercise its voting rights on a 15 per cent stake in Renault.

Renault would benefit from reducing the capital it has tied up in Nissan. The stake now accounts for €6.1bn of its €9.4bn market value. That leaves a stub worth €10 a share, not much more than its €7 (ex Nissan) earnings per share, estimates Jefferies.

The valuation is weighed down by the complex shareholding structure, as well as operating profit margins below most peers. Renault lost its second-biggest market when it exited from Russia earlier this year. The shares are up 45 per cent in the past six months, though are not back to their pre-invasion high.

The task of unpicking the alliance is complicated by Renault’s multiple stakeholders, including the French state. But Renault may be able to announce the bones of an agreement at its November 8 capital markets day.

The balance of power between the two companies has shifted since Renault bought its stake in a near-bankrupt Nissan at the turn of the century. Renault needs support for its restructuring plan, giving Nissan stronger bargaining chips. The mutual desire for change has opened up a potential way forward.