Nissan is on the brink of investing anywhere from $500 million to $750 million into Renault’s electric vehicle (EV) business. So what if it is losing around $687 million as it hands over its business in Russia to a state-owned entity for 1 euro? The automaker swears it can maintain its earnings forecast for the financial year ending in March 2023.
These intersecting stories about Nissan come at a time in which the entire auto industry has been upended by the push to transportation electrification. Complicating already difficult and shifting business influences at Nissan is the Russian offensive against Ukraine. Over 1,000 companies previously closed down operations in Russia and left the country after the widely condemned invasion on February 24 of this year.
But Nissan’s efforts to stabilize its business operations through a new Renault collaboration have caught most of the headlines, with reports indicating that executives from Nissan and Renault met this week to discuss an EV grab, shareholdings, and other issues.
Nissan CEO Makoto Uchida and chief operating officer Ashwani Gupta spent much of the past weekend with Renault CEO Luca de Meo and Francois Provost, senior vice president of international development and partnerships. A rainy and miserable storm hovered over the Suzuka Formula 1 Japanese Grand Prix and forced a series of red flags and safety cars — as well as a really boring “race.” The fierce weather gave the 4 executives plenty of time to chat as they awaited restarts.
Their discussions continued on Monday in Yokohama at the Nissan headquarters.
The Public Face of the Alliance
Amidst swirling rumors, on October 10, Renault Group and Nissan Motor Co. issued a terse joint statement from Paris, Tokyo, and Yokohama. The Alliance said they are currently engaged in “trustful discussions around several initiatives as part of continued efforts to reinforce the cooperation and the future of the Alliance.”
The discussions include:
- An agreement on a set of strategic common initiatives across markets, products, and technologies.
- Nissan’s consideration to invest in the new Renault EV entity which will support Renault’s Renaulution strategy and will be one of the strategic steps towards Nissan Ambition 2030.
- The companies continue to drive structural improvements to ensure sustainable Alliance operations and governance.
The brief statement ended with the comment that “any further communication will be done in due course by the Alliance members.”
Behind-the-Scenes Nissan/ Renault Negotiations
Here is what we know.
The newly defined Alliance: Renault has reached out to its alliance partners, Nissan Motor and Mitsubishi Motors, to invest in a new EV endeavor. The reconceptualized business model is being formed by Renault CEO Luca de Meo. A series of discussions will take place that will outline how such an EV investment will affect their Alliance, and key points focus on Renault retaining a minority stake in the legacy business and a possible initial public offering. The French state, which has a 15% shareholding in Renault, also would need to approve the companies’ plans.
Renault’s entry into the world of EVs: As part of a new growth strategy, Renault plans to spin off its EV business into a separate company. Renault commented earlier this year that the EV plant would be located in France and employ about 10,000 people by 2023.
Nissan’s stake in Renault: Nissan owns 15% of Renault and lacks voting rights. With the new agreement, Nissan could become more competitive.
Nissan’s overall financial picture: Last year, Nissan laid out a plan to reach 50% electrification by 2030, spending 2 trillion yen ($13.8 billion) over 5 years. Nissan sales grew in the period ending March 2022 for the first time since former boss Carlos Ghosn was pushed out 4 years ago (and jailed in Japan). June 2022 tallies amounted to nearly $10 billion in cash. Free cash flow will turn positive at about 388 billion yen ($2.7 billion) by 2024, Morningstar estimates.
Show me the money: The June Nissan cash and equivalents gave the company plenty of leeway to invest in Renault’s EV business and repurchase some of its shares. Nissan’s profitability and sales are better than forecast, and the company will likely raise its outlook when it reports quarterly results in early November.
Can’t we all just get along? The changes will require a new operating agreement among the companies. That will be interesting to watch, as Renault rescued Nissan in 1999 and sent in Carlos Ghosn, who eventually became CEO of both automakers and the chairman of their Alliance. He later added Mitsubishi Motors to the partnership but was arrested in 2018 on charges of under-reporting his compensation. He escaped Japan in December 2019 in a guitar case and is currently in Lebanon.
How Nissan feels about the Alliance’s evolution: Nissan sees Renault’s current reorganization as a chance to reexamine their relationship, which goes back decades and has often been fraught with tension and jealousy. Nissan views its upcoming participation with Renault as engaging in both advanced EVs and software.
Renault to sell shares of Nissan: Nissan had made several previous requests for a review of the Renault proportion of Nissan ownership. The deal is contingent on Renault’s reduction in its Nissan ownership from its current 43% down to 15%. Renault’s voting rights will also be capped immediately when the deal goes into effect.
How the new arrangement will help Renault: Renault needs funds for its battery-powered plans. The block of shares to be set aside is currently worth about €4 billion. Renault EV plans could defray some costs, as one of its Alliance members, Mitsubishi Motors, already plans to share technology in a bid to spread the financial burden of electrification.
How quickly will the shares be sold? Renault’s sale of its stake in Nissan will take place incrementally, with a possible option to place shares in a trust and give Nissan the right of first refusal for any stock that is offered for sale. Any agreement will include provisions preventing Renault from selling shares to a competitor or to an activist investor.
Is it all EV, all the time? No. It seems the facility will not be exclusively designated for EVs but will also develop and produce combustion and hybrid powertrains. In fact, Nissan’s distinct strategy limits collaboration possibilities due to its continuing emphasis on hybrid motors (an internal combustion engine with a battery electric capacity). Nissan’s E-power hybrid technology has yet to be included in the Alliance’s electrification plans.
Are there any likely barriers to this newly designed Alliance? One possible hitch to the negotiations is Nissan’s reluctance to allow Renault to transfer combustion powertrain technology to Aurobay — a joint venture between Volvo Cars and China’s Zhejiang Geely Holding Group — and other investors. Others hurdles for the combustion-powertrain deal include securing blessings from the Japanese government and from Dongfeng Motor Group, Nissan’s longtime partner in China.
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Source: Clean Technica