Rational analysis of Renault's ElectriCity pure electric plan and battery supply guarantee

Renault has two big news at the moment. On the one hand, in terms of electric vehicle planning, Renault ElectriCity plans to establish a wholly-owned entity company to produce electric vehicles in three factories in Douai, Maubeuge and Ruitz, and produce 400,000 vehicles per year by 2025. At the same time, China's AESC Vision Group invested 2 billion euros to build a battery factory near "ElectriCity", reaching 9 GWh in 2024 and expanding to 24GWh in 2030.

Figure 1 Renault's Electri City plan

Note: I think the current global automotive industry has become very special and unfamiliar in the face of the epidemic and the changes in capital's attitude towards industrial changes. For example, all European auto companies are currently competing to see who has more pure electric plans. Each auto company must use the media to publicize when to abandon the internal combustion engine, and Toyota, which has a slow pace of pure electric, has become the tail of the pure electric segment. In China, every auto company hopes to lay a foundation in the transformation. For example, two days ago, Great Wall's 2025 plan of 4 million and 80% new energy ambitions. For domestic companies, there will be many different opinions. I hope to discuss what are the strange places based on the facts. Now I feel that many of the plans I hear are unfeasible.

Part I Renault's Plan

For Renault, it is necessary to combine the situation of last year. In 2020, Renault suffered a net loss of 8 billion euros, the largest annual loss in history, of which nearly 5 billion euros came from Nissan. To deal with this loss, Renault needs to significantly cut costs, reduce R&D investment (from 10% to 8%) and possibly close factories (global production capacity from 4 million to 3.1 million). While other peers in Europe have significantly increased their investment in electric vehicles, Renault needs to achieve an operating profit margin of 3% in 2023 and increase it to 5% by 2025.

I took a closer look and found that Renault's current situation in Europe is average. From January to May 2021, its European sales were 580,000 units, which is much better than the most difficult 440,000 units from January to May 2020. However, compared with 852,000 units in 2019, this year is not expected to be particularly good.

Figure 2 Renault sales in Europe

From a general premise, Renault sold 1.945 million units in Europe in 2020, and the sales in 2020 became 1.4439 million units. Considering the current chip constraints and the repeated epidemic situation, it is expected to achieve about 1.5-1.6 million units this year. With the reduction of factories, the product portfolio in Europe needs to be oriented towards HEV, PHEV and EV. The sales target of 400,000 BEVs will be difficult to achieve without additional large investments.

Note: Renault has sold 115,888 electric vehicles in 2020

Figure 3 Renault’s sales in Europe from 2019 to 2020

Renault's main sales model is ZOE under Bseg in European analysis. Renault's main way to increase its profit margin in Europe is to work on Seg C. In fact, it can be understood that separating the electric vehicle product matrix and factory into an entity may require the French government to inject capital or seek external financial support. Otherwise, it will be difficult to increase BEV sales to 400,000 units relying on the current product strength.

Figure 4 Renault’s January plan

Part 2: Can the Mégane E-Vision compete under CMF-EV?

Mégane E-Vision is currently in the preparation stage. The 60kWh version (130kW charging may be different from the battery of the LEAF) made from CMF-EV is actually very similar to Volkswagen's ID3 in all aspects. This car is expected to debut in the second half of the year and officially delivered in 2022. According to the current unsatisfactory sales of Renault electric vehicles, ZOE sold 5,826 units in May and 22,491 units in 2021; Twingo 3 ZE sold 1,751 units in May and 8,338 units in 2021. Dacia's small car Spring sold 202 units in May, a total of 928 units, plus Kangoo ZE's 4,673 units. Renault has sold a total of about 34,000 units in the past five months, which is a long way from doubling in 2021.

According to the data from the Automobile Association, 6,000 Spring EVs were exported. It is estimated that this volume will be released gradually this year. From this perspective, Renault already has more than two battery suppliers. The European ZOE is supplied by LG, Dacia is supplied by a Chinese battery supplier, and the Mégane E-Vision is another purchase. The 9GWh provided by AESC in 2024 is about 150,000 units, accounting for more than 1/3 of the 400,000 BEVs.

Figure 5 Renault's Mégane E-Vision

In Europe, we can actually divide companies into profitable companies and loss-making companies. Renault is a typical car company that is currently facing great challenges. On the one hand, it is necessary to save expenses, and on the other hand, it is necessary to catch up with the rapid popularization of pure electric penetration by various car companies. The only way to think of is to separate the electric vehicle part and seek government funding. Making electric vehicles is a business that requires a lot of investment and cannot be said to be profitable in the short term. This report written by TE is saying that car companies are constantly making promises, but based on the current environment of automobile operations and the epidemic, how can they jump over it? Stubborn Toyota is definitely a "latecomer" in BEV in Europe.

Figure 6 Renault is an active player in promoting electric vehicles

Summary: Looking at the funding of the three Chinese electric vehicle startups, and then looking at the European auto companies that are relatively miserable (Renault, Jaguar Land Rover, Ford), they need money to transition to a high penetration rate of BEV, and the scale and profit of their own fuel vehicle business are shrinking. This is not a self-consistent state no matter how you look at it. At present, it seems that Renault cannot get more money to invest in battery companies on its own. This approach can only involve willing battery companies to invest on their own. There will be Volvo's Technology Day on June 30th. We can see Volvo's solution at that time. I mentioned some time ago that Volvo also gave Northvolt a lot of battery orders. At present, European auto companies are seeing that on the one hand, they are expanding the production capacity of electric vehicles (maybe a vision), and on the other hand, they are maintaining the battery supply in Europe.