"Renaulution" 2: Luca de Meo initiates French Revolution

The peak of the automotive industry may have been surpassed – at least in Europe and North America – and not just due to Covid-19, but simply because many markets are saturated. And as it becomes increasingly apparent that it's not the big, but rather the fast bird that catches the worm, the new Renault CEO is steering accordingly. "Renaulution" is what the Italian-born de Meo calls Renault's new direction. He is familiar with crises and has mastered several (having been hardened at Fiat and Seat). He no longer focuses on sheer volume but rather on the sustainable profitability of the company and aims to reduce the CO2 footprint of the Renault Group in Europe to zero by 2050.

"Renaulution" comprises three phases that start and are prepared in parallel:

Recovery: until 2023 – focusing on improving margins and generating cash Renewal: until 2025 – targeting new vehicle segments; aim: to increase profitability Revolution: from 2025 – the business model is increasingly focused on technology, energy, and mobility; the goal is to make the Renault Group a pioneer in new mobility. Luca de Meo explains his plan as follows:

“Renaulution is about shifting the entire company from volume to value. It's more than a turnaround; it is a profound transformation of our business model. We have created a stable, healthy foundation for our performance. We have streamlined our processes, starting with development, adjusted our size where necessary, and directed our resources towards high-potential products and technologies. This increased efficiency will drive our future product range: technology-driven, electrified, and competitive. And this will strengthen our brands, each with their own clear, differentiated territory; responsible for their profitability and customer satisfaction. We will develop from a car company working with technology to a tech company working with cars and achieve at least 20 percent of our revenue from services, data, and energy trading by 2030. Along the way, we rely on the strengths of this great company, on the skills and commitment of its employees. Renaulution is a strategic plan that we will implement and achieve exactly as we have developed it: together.”

The specific points sound rather familiar to banal: Competitiveness should be improved by increasing efficiency in engineering and production; the goal is to reduce fixed costs and improve variable costs globally. The group's current industrial assets and leadership position in e-mobility should be consistently utilized. Additionally, of course, the advantages of the alliance with Nissan and Mitsubishi should be further leveraged, starting concretely with the new CMF platform.

New business fields with mobility services

More important is the development of business fields for mobility services as well as energy and data management. Accordingly, de Meo is reorganizing the company: The functions, with engineering at the forefront, are responsible for competitiveness, costs, and timely product launches of the brands. The brands manage their profitability.

According to this value-oriented organization, the company will no longer measure its performance by market shares and revenue in the future, but by profitability, cash generation, and investment effectiveness. This also includes new financial goals: By 2023, an operating group margin of more than 3 percent should be achieved, and a cumulative operational free cash flow in the automotive sector of about 3 billion euros (2021-23); investments (R&D and Capex) should drop below 8 percent of revenue.

Figures that digital companies might only smirk at, but are now considered good in the car business – and should get even better: By 2025, an operating group margin of at least 5 percent should be achieved, a cumulative operational free cash flow in the automotive sector of about 6 billion euros (2021-25) and an improvement in the return on capital employed (ROCE) by at least 15 points compared to 2019.

Four new business units: Renault, Dacia-Lada, Alpine, and Mobilize

Four business units are intended to strengthen identity and positioning: Renault, Dacia-Lada, Alpine, and Mobilize. 24 new launches are planned by 2025 – half of them in the more profitable C/D segments (from Megane upwards) – and at least 10 fully electric vehicles. The new value-oriented organization in conjunction with the product offensive will lead to a better price and product mix.

Additionally, de Meo plans to reduce the number of vehicle platforms and powertrains: All models to be launched on the existing platforms will hit the market in less than 3 years; Production volumes are set to drop from 4 million units in 2019 to 3.1 million units in 2025, along with "increased efficiency with suppliers," many of whom are already operating at their economic margins. Strict cost discipline over the reduction of fixed and variable costs as well as R&D and Capex expenses should lower the break-even point by 30 percent by 2023.

New French Wave: "La nouvelle Vague"

With a comprehensive product offensive, the so-called "Nouvelle Vague," which translates to "New Wave," Renault aims to "set benchmarks in the automotive industry." The lofty goal is to "strengthen leadership in the energy transition through electric and hydrogen solutions and offer the greenest powertrain mix of all manufacturers in Europe by 2025." To this end, Renault will launch 14 new models, seven of which will be fully electric. Additionally, they aim to improve the segment mix with a C-segment offensive and strengthen positions in Europe.

At the same time, the brand is focusing on profitable segments and channels in key markets such as Latin America and Russia. According to Renault, the brand’s strategy is based on "current strengths," which are to be expanded. In the field of electrification, Renault aims to be leading by 2025. This is facilitated by the establishment of the "Electric Pole" in northern France with the largest production capacity of the Renault Group for electric vehicles worldwide. There is also a joint venture in the hydrogen sector. Another key pillar is the strong position in hybrid technology.

Strengthening the Tech Sector with Open Software

In the technology sector, Renault will soon rely on the so-called "Software République" – an open cooperative ecosystem that deals with software, data, cybersecurity, and microelectronics. This will expand Renault's offering of connected services. Renault will become a player in key technologies from big data to cybersecurity.

Additionally, Renault is leveraging its strong position in the circular economy with EV and energy services. To this end, the company is realigning the French production site in Flins to become a circular economy center focused on mobility. The goal of the so-called “Re-FACTORY,” which will be established by 2024, is to contribute to a negative CO2 balance of mobility by 2030 through sustainably optimized circular economy practices.

Finally, a Clean-Up for Dacia and Lada

The creation of its own Dacia-Lada business unit is also intended to make affordable models more profitable: the Romanians and Russians are to increasingly use the new, highly flexible (combustion-powered) CMF-B platform of the alliance and reduce the number of vehicle platforms from four to one and the number of body types from 18 to 11. The average production per platform is thus expected to increase from 0.3 million units to 1.1 million units per platform, implying that conservative production numbers are being planned: After all, 0.3 times four equals 1.2 and 1.1 times one equals 1.1.

Dacia is set to continue using a clear, cost-disciplined "design-to-cost" approach in product development with a "touch of coolness". After the new Sandero and the electric Spring, three more new Dacia models are expected by 2025, including certainly the Duster successor and possibly a second larger SUV to replace the Van Lodgy. The "Bigster" concept shows what Dacia's future along with a new logo could look like.

Lada Sticks with Combustion Engines for Now

A seven-seater with ample cargo space is particularly important for North Africa and Eastern Europe. Overall, the business unit plans to introduce seven new models by 2025, two of which will be in the C-segment. In the field of alternative drives, both brands will be able to use corporate technologies, with LPG planned for Dacia and Lada models, and E-Tech technology for Dacia. Since Lada is strong primarily in Russia and the former Soviet republics, where e-mobility currently (almost) plays no role, the brand will not be electrified for now.

Alpine: Brand Rescued – A (Very Likely Light) E-Sportscar Planned, Developed with Lotus

Under the umbrella of the new Alpine Business Unit, Alpine Cars, Renault Sport Cars, and Renault Sport Racing will combine their strengths in the future. In addition to focusing on Formula 1 and motorsport, Alpine aims to develop new high-performance, innovative, and purely electric sports cars. The new Alpine Business Unit will leverage the full technical expertise of the Renault Group and the Alliance. In collaboration with Lotus, a purely electric successor to the Alpine A110 is to be developed. At Lotus, this could simultaneously take over the role of the now well-aged Elise. The goal of the Alpine Business Unit is to be profitable by 2025, including investments in motorsport.

Exciting New Business Area: Mobilize

The new brand consolidates all activities of the Renault Group in the areas of mobility, energy, and data-based solutions. Mobilize leverages, among others, the expertise of RCI Bank & Services. This new business area aims to develop new business fields from data, mobility, and energy services and generate more than 20 percent of the Group's revenue by 2030. Beyond automobiles, Mobilize will offer a wide range of innovative services in the areas of mobility, energy, and data. The new unit will have its own engineering, quality and design team, as well as its own service offerings in the areas of energy, connectivity, and mobility.

What Does This Mean?

The fact that Luca de Meo might be the right man at the right time is evidenced by the realignment of the brands: where Ghosn was still going along with the race for sheer size, de Meo is focusing on profitability. A trend that many car manufacturers are now following. In the future, flexibility and profitability, not sheer size, will determine the success or failure of a car brand. With the planned restructuring, Renault, as one of the oldest car brands in the world, could succeed in this.