RNO: Negative Stub Pricing Will Reward Execution Amid EV Transition Costs

Analysts have modestly lowered their price target on Renault to EUR 36, trimming fair value from about EUR 46.00 to roughly EUR 45.68. They cite a balance between slightly improved growth expectations and pressures from Chinese competition, electric vehicle transition costs, and regulatory headwinds in Europe.

Analyst Commentary

Analyst views on Renault remain balanced, with valuation support tempered by structural and competitive risks across the European auto sector.

Bullish Takeaways

• Bullish analysts highlight that Renault trades at a discount, with its industrial business implied to have a negative stub valuation, suggesting the market is overly pessimistic relative to underlying assets and cash generation potential.
• They argue that current pricing embeds a worst case scenario on Chinese competition and electric vehicle execution, leaving scope for upside if Renault delivers on cost efficiency and maintains product pricing discipline.
• Improved visibility on electric vehicle programs and platform sharing could support margins over the medium term, helping narrow the valuation gap versus premium peers once near term transition costs normalize.
• Analysts see potential for multiple expansion if Renault demonstrates consistent free cash flow delivery and clearer capital allocation, including debt reduction and disciplined investment in EV and software capabilities.

Bearish Takeaways

• Bearish analysts remain cautious on execution risk in a period described as tumultuous for European automakers, with Renault needing to fund its electric transition while navigating softening demand and shifting consumer preferences.
• They flag intensifying competition from Chinese manufacturers in both EV and lower cost segments, which could pressure pricing power, market share and ultimately returns on invested capital.
• Regulatory and policy uncertainty in the European Union around emissions, tariffs and trade flows introduces additional volatility to earnings, potentially limiting near term visibility and justifying a more conservative valuation approach.
• Currency moves and input cost inflation are seen as ongoing headwinds that could erode margin recovery, making it harder for Renault to close the profitability and valuation gap with better positioned premium OEMs.

What's in the News

• Renault has ended its joint project with Valeo to develop a rare earth free EV motor and is now seeking a cheaper Chinese supplier for future electric powertrains (Reuters).
• Renault is considering cutting up to 3,000 jobs worldwide, mainly in support functions such as HR, finance and marketing, as it looks to simplify operations and reduce fixed costs in a highly competitive market (Bloomberg).
• European automakers including Renault are facing severe semiconductor shortages that risk halting production lines despite China lifting certain export restrictions, highlighting ongoing supply chain fragility in the sector (Financial Times).
• Renault is exploring ways to support France's defense efforts, with any potential contribution to be led by the defense ministry and carried out alongside domestic defense companies, though no final decision has been made (Bloomberg).

Valuation Changes

• Fair Value: reduced slightly from €46.00 to approximately €45.68, reflecting a marginal downgrade in the base case valuation.
• Discount Rate: unchanged at 12.3 percent, indicating no revision to the perceived risk profile or cost of capital.
• Revenue Growth: nudged up slightly from about 2.36 percent to roughly 2.40 percent, signaling a modest improvement in top line expectations.
• Net Profit Margin: edged down slightly from around 3.97 percent to about 3.91 percent, pointing to a small deterioration in projected profitability.
• Future P/E: increased marginally from 7.39x to about 7.44x, suggesting a modestly higher valuation multiple on forward earnings.