Groupe Renault to steer markets like Latin America, India and Korea towards high margin business: Global CEO Luca De Meo

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Mumbai: Even as the French car maker Renault India is planning to intensify its presence in the mainstream mass market with a sub-compact SUV named Kiger, the parent has announced a new mid-term plan that shifts focus from ‘volume to value.’

Presenting the new strategic plan coined ‘Renaulution’ through a webcast, Luca de Meo, global CEO of Groupe Renault said his intention is to make all of its key global markets around the world profitable by 2023. India is likely be a key part of this plan as it had already broken into top 10 markets for the French car maker in 2019.

De Meo said that Renault will steer group’s international footprint towards high margin business: notably in Latin America, India and Korea while leveraging its competitiveness in Spain, Morocco, Romania, Turkey and creating more synergies with Russia. It will look at re-inventing the business model in China and may target market entry in line with the 6G roll out in the future.

The aim is to defocus from entry or mass market models globally, said the CEO, but didn’t clarify a specific plan for pre-dominant mass market like India. On Brazilian market, Demeo said Renault will attempt to push the price higher.

“We grew bigger but not better, we grew wider but not better. The idea is to move from share of market to share of wallet. Now we know what we have to do – reduce our breakeven point, reduce complexities and focus our investment on profitable growth. We will focus away from market share to margin growth,” explained De Meo.

While the mid-term plan was largely centered around its core market Europe, refering to the emerging markets, De Meo said the emerging markets will go back to pre-covid level by 2023 an it will take another two years – i.e. till 2025 for Europe to attain the pre-covid sales. And the mid-term plans are defined keeping these market recoveries in mind.

This would essentially mean, the core focus of India too may shift from CMF-A platform cars – which is the entry car Kwid platform vehicles priced sub-Rs 8 lakh (Kwid, Triber, Kiger) to a higher margin CMF-B platform – which may come out with new generation Duster and C segment SUV. The approval for the CMF-B platform for India is yet to be received, however given the global shift, it appears to be the next logical step from Renault in India may be towards bigger SUVs and MPVs that deliver higher margins.

Interestingly, Renault’s global alliance partners Nissan have shifted focus to B and C segment. In Indian market parlance – vehicle between 4-4.75 metre priced between Rs 10 lakh to 25 lakh.

The strategic plan is structured in 3 phases – Resurrection”, running up to 2023, where the company will focus on margin and cash generation recovery, ‘Renovation’ spanning up to 2025, which will see renewed and enriched line-ups, feeding brand’s profitability and lastly ‘Revolution’ mode from 2025 and onwards, which will pivot the business model to tech, energy and mobility; with an intention of making Groupe Renault a frontrunner in the value chain of new mobility.

Renault will be launching 24 new models in the coming five years including 10 all electric vehicles.

Renault is consolidating its vehicles and powertrain architecture. Going ahead it expects the three vehicle architectures – CMF-B, CMF-C and CMF-EV to account for 6 million units global sales for the Renault-Nissan Mitsubishi alliance. It expects 85% of its total sales to come from three architectures. The company is reducing the powertrain option from eight to four.

The e-Tech hybrid powertrain will be ready by 2021, full fledged electric vehicle powertrain by 2023 and the hydrogen fuel cell by 2025

It expects 45% of the brands sales to come from C and D segment in Europe by 2025, which will add to the bottomline.

The CEO expects the EV to deliver higher contribution margin from EVs over conventional powertrain and he sees the cost of EV powertrains dropping by half in the coming 10 years.

Renault will also seek to right-size is manufacturing footprint and the CEO is targeting 100% capacity utilisation at its factories by 2023.

There is a plan to reduce diversity by 30% in production; the future product plans are defined to have 85% of parts to be common. With commonalities of vehicle and engine architecture along with plant rationalisation, the company intends to deliver 3% Group operating margin by 2023.

Renault expects in the coming decade, 30% of its total sales to come from fully electric vehicles with 35% of them with hybrid powertrain.

Groupe Renault will be spending 14 billion Euros in the coming years and the R&D spend as a percentage of turnover will come down from 11% currently to 8-9% in the coming years.

The Group has set a new financial objective: By 2023, the Group targets to reach more than 3% group operating margin, about €3bn of cumulative automotive operational free cash flow (2021-23) and lower investments (R&D and capex) to about 8% of revenues.

By 2025, the Group aims for at least 5% group operating margin, about €6bn of cumulative automotive operational free cash flow (2021-25), and a ROCE improvement by at least 15 points compared to 2019.

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