Renault and Tesla speaking a different language

The European OEM is taking an entirely different approach to reduced EV customer purchasing power

? Thierry Pieton , CFO of France’s 雷诺 , may not have delivered the firm’s Q1 revenue update in his native tongue. But, when it comes to his view of potential price cuts for its flagship Megane E-tech EV, he might well have been speaking a different language to that of Elon Musk, CEO of its US rival Tesla , when his firm also addressed Q1 performance the previous day.

“The reality is that, at the overall group level, the plants are full—we are at 100pc capacity, generally speaking. So, there is no big incentive to cut the prices, kill residuals and go into the spiral that some of the competition is following,” says Pieton.

“If it results, in the short term, in slightly lower volumes, so be it,” he concludes. The contrast with Musk’s assertion that “pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin” could hardly be starker.

?March recovery

?The first two months of the quarter were tricky for the Megane, even if Renault could boast its overall Q1 sales made it the best-selling EV in its segment in its home French market. Q1 sales were over 11,000 units, with more than 70pc of the volumes high-trim versions and 80pc+ with the most powerful 60kWh/220bhp motor.

Since its June 2022 launch, Renault reports more than 54,000 orders for the car. But Pieton admits that March was “much better and encouraging” after January and February sales were “pretty soft” owing to subsidy cuts “in numerous EU countries”. With end-of-February orders, as per Renault’s Q4 results presentation, at 49,000, this suggests that c.5,000 of Q1’s 11,000 sales were backloaded into March.

“It is a market that is still not mature,” Pieton says. “The reality is that, at the end of last year and beginning of this, there were cuts that were made almost everywhere in government subsidies, and we saw an impact from that on the markets.”

Renault’s BEV sales in Q1 were “roughly flat” to the same quarter last year. Offsetting sales of the Megane new launch, demand for the Swing made by Renault’s Romanian subsidiary Dacia was lower.

The length of the future BEV order book is also shorter than the 3.3 months average for the group as a whole, at “north of two months”. “But it is still pretty healthy… no specific tension on this,” Pieton assures. ??

?Strategic decision

?For Megane, “we have adopted a strategy which is to tweak pricing by things like improving the package we give when customers take financing, in particular leasing,” says Pieton. “We have done things like give incentives on the wall box to make the deal a little sweeter, but we have not made—and we do not plan to do—any drastic price changes.

“Our goal is to support the residual value of this car. Because most people buy it with financing, and what is important for them is for the rent to remain competitive. When you cut price significantly, residual value takes a dip,” the finance chief continues. And Renault feels that a sub-€400/month rental rate ensures that the Megane can compete. ?

It will also continue to work “aggressively” to bring Megane production costs lower, although Pieton warns that this is less easy for a released model than a car in development. But, while he stresses that it is not the “intent” to cut prices, the fact that Megane is “attractive from a profitability perspective” would offer it some headroom to do so.

The equity market seems relatively unimpressed with either the price-cutting or price discipline approach, with both Tesla and Renault’s share prices down since Tesla’s post-market close announcement last Wednesday. But at least one analyst view is supporting of Renault’s approach, with Pierre-Yves Quemener , director of automotive equity research at investment bank Stifel Financial Corp. , describing Tesla’s “drive to increase affordability and chase volumes” as “fooling around” with prices and introducing “concerns about the BEV industry’s fragile pricing discipline”.

“We all concur that this is a dangerous strategy; and a painful one, especially for customers that have bought cars ahead of price cuts,” Quemener says, asking Renault “to confirm that we do not have to fear, at this point, price cuts”.

Quemener and Renault may be right and putting value over volume, rather than Tesla’s vice-versa, may be the best strategy at this point. But the last few years of automotive industry history do not necessarily advertise that betting on Tesla having it wrong and the traditional Western OEMs having it right is always the smartest money in town.?