Struggles Continue, Business Restructuring Ongoing
The car business has continued to struggle as it suffers from the lack of a major presence in the rapidly-growing Chinese market and due to a global shortage of semiconductor chips. Since the company appointed new CEO Luca de Meo in July 2020, it slashed production and focused on cars with higher margins, an approach that is starting to yield results.
Moreover, Renault was also helped by increasing prices for the third straight quarter; however, it was not enough to cushion the blow from its reduced inventory and other challenges, such as disadvantageous foreign exchange effects.
Overall, the French car company reported its total business revenue fell 1.1% to €10 billion ($12 billion) from a year earlier. Without taking currency and other effects into account, Renault’s business sales were up 4.4%, according to the company.
Just like the entire industry, Renault too has been hit by a global shortage of semiconductor chips, a problem that could last until Q3 of this year, with the improvements expected by the end of 2021.
The chip crunch forced the company to slash car production by tens of thousands of vehicles in Q1, according to the company’s finance chief Clotilde Delbos.
“Two months ago we said we think the peak will be in the second quarter, but we think there will be a lingering effect in the third quarter if not further. The visibility is deteriorating,” he said.
Some European carmakers, like Mercedes Benz owner Daimler and Volkswagen, have cashed in on the booming auto market in China, but not Renault. Another rival, Hyundai Motor Co., reported its best Q1 profit results in four years thanks to an increased interest in its luxury cars, another segment Renault did not benefit from.
The French auto company exited its main passenger car business in China as a result of disappointing business sales and said it was more focused on its core European market.
"We're still far from being in a normal situation," Delbos said and added that the company decided not to provide any financial guidance because of persisting uncertainty.
The French car business was hit hard in 2018 after the scandal with its former chairman and CEO, Carlos Ghosn. During his time at Renault, Ghosn struck a partnership with Japanese carmaker Nissan. The two companies are now trying to restart their business alliance.
Renault is also struggling with increasing competition in the electric vehicles (EV) market, where other European rivals like Volkswagen, BMW, and Audi are making significant progress. Electric and hybrid cars are likely to represent about 15% of the company’s sales this year, compared to 10% from 2020.
Renault stock price slipped 2% in today’s trading session in Paris.
Renault reported lower business sales for a fifth consecutive quarter as the French carmaker failed to see a major recovery from the COVID-19 pandemic. In addition, the company failed to leverage the booming auto market in China and a surge in demand for luxury cars.