Renault’s Ampere IPO is near

Renault's upcoming initial public offering (IPO) for its Ampere electric vehicle division could potentially attain a valuation of around 10 billion euros, according to CEO Luca de Meo. While speaking at the IAA car show in Munich, De Meo suggested that Ampere might command a valuation between eight to ten billion euros when it goes public next year, contingent on market conditions.[1]

This announcement follows Renault's strategy of separating its operations into two divisions: Horse for traditional combustion engines and Ampere for electric vehicles (EVs) and software. This move aims to provide greater clarity and specialization, strengthening Renault's position in the competitive EV landscape, especially in the face of emerging competition from China and the U.S. This valuation estimate surpasses prior speculations that pegged Ampere's worth at 3 to 4 billion euros, emphasizing the substantial assets dedicated to the electric vehicle unit, including car platforms, advanced electronics, software architecture, manufacturing facilities, and skilled engineers. [1]

China is a major competitor in EV sector

Luca de Meo emphasized China's significant competitiveness in the electric vehicle (EV) market during an interview. Speaking from the IAA Munich car show, de Meo acknowledged China's strength in the EV supply chain and the need for Renault to quickly catch up.

He also revealed that Renault intends to unveil the pricing details for its upcoming Scenic electric minivan later in the year, with plans for a launch in the first quarter of 2024. De Meo noted that the Scenic's pricing will be attractive to a wide range of customers, making it a competitive option compared to similarly sized and categorized hybrid models. [2]

On the other hand, there are facing competition also from Tesla. According to Gilles Le Borgne, Renault's Head of Engineering, the company cannot engage in a price war with Tesla or Chinese electric vehicle competitors. Speaking at the IAA Munich car show, Le Borgne emphasized the importance of maintaining prices while focusing on adjusting fixed costs. Renault's substantial presence in the European market puts it in a particularly competitive position against new entrants like Tesla and Chinese EV manufacturers, as highlighted in a recent UBS note. [3]

UBS not so positive on Renault

UBS has downgraded Renault, the French automaker, to a Sell rating from Neutral, and concurrently lowered the 12-month price target on the stock to €31.00 from €42.00.[2] This downgrade comes amidst increasing competition from Chinese automotive rivals. Although UBS anticipates continued strong financial performance in the coming quarters, they point out that most indicators are no longer showing improvement. UBS analysts assert that traditional automakers face a significant risk of losing substantial market share due to intensifying competition from Chinese OEMs like BYD and Tesla.

UBS has taken this into account in their 2024 projections, which partially offsets the potential impact of a steeper price/mix decline. Nevertheless, UBS believes these cyclical headwinds cannot be entirely offset, posing challenges for Renault as they navigate the evolving automotive landscape marked by formidable competition from China and Tesla. [4]

Stock development

In the past five years, stocks of Renault were pretty much in a bearish trend. In fact, for the last five years, they have generated a loss of more than 50%. However, if we check the time frame since they came to the market, they have generated a profit of 28,25%. At some points, there was even bigger growth, however, it was shortly followed by major correction. The biggest growth recorded was more than 300% in June 2007. *

Movement of Renault stocks in the last five years. (Source: Google Finance) *

Conclusion

Renault is gearing up for a significant transformation with the imminent initial public offering (IPO) of its Ampere electric vehicle division, projected to potentially achieve a valuation between 8 to 10 billion euros.[3] While China has emerged as a formidable competitor in the electric vehicle supply chain, Renault's CEO, Luca de Meo, is committed to catching up and ensuring the company's competitiveness. Company surely looks interesting to keep an eye on, Ampere will be a main event and could have potential effect on the stock movement.

-----------

Adam Austera, chief analyst at Ozios

* Past performance is no guarantee of future results

[1,2,3] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or based on the current economic environment which is subject to change. Such statements are not guaranteeing of future performance. They involve risks and other uncertainties which are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.

[1] https://www.reuters.com/markets/deals/renault-ceo-sees-ampere-ipo-valuation-up-10-bln-euros-ft-2023-09-05/#

[2] https://www.investing.com/news/stock-market-news/renault-ceo-china-very-competitive-on-electric-vehicles-europe-needs-to-catch-up-3166710

[3] https://www.reuters.com/business/autos-transportation/renault-cannot-afford-discount-race-with-tesla-chinese-peers-executive-says-2023-09-03/

[4] https://www.investing.com/news/stock-market-news/ubs-cuts-estimates-on-renault-and-volkwagen-as-chinese-competition-rises-432SI-3166149