European Recovery Helps Cushion Renault's Sales

Renault's cost-cutting plan is on track and it should have positive cash flow from cars by the end of 2020, the French carmaker said on Friday, as sales recovered from a slump during the first wave of coronavirus lockdowns. Renault was already struggling before the COVID-19 pandemic hammered auto markets and new Chief Executive Luca de Meo wants to reverse a long-standing strategy of global expansion to focus on selling more high-priced cars to improve profitability.

The company said in a trading update that it had started to benefit from this drive in the third quarter and also grabbed a bigger share of the European market as dealerships reopened, helped in part by a 157% surge in sales of its Zoe electric car. Renault's revenue in the three months to Sept. 30 came in at 10.4 billion euros ($12.3 billion), a fall of 8.2% from last year but a marked improvement on the 35% slide in the first six months of 2020. Renault shares were up 2.15% at 0814 GMT, with analysts saying the company's drive to sell more, pricier cars was going better than expected.

Renault's financial strength has been a central focus for analysts and ratings agencies alike

However, Renault did not give an earnings forecast for 2020 and said the outlook for next year remained uncertain because of the risk new COVID-19 lockdowns would hit business again. De Meo is pressing on with cost-cuts announced before his arrival in July, which include axing 15,000 jobs worldwide and trimming car production in a bid to save 2 billion euros. He is due to unveil an eight-year plan early next year and told staff in September that the company may have to cut costs by more than initially planned. "Our fixed cost reduction plan is well on track," Clotilde Delbos, deputy chief executive, told a conference call about Renault's trading update.

Renault posted a record net loss of more than 7 billion euros in the first half of 2020. Its overhaul also entails doubling down on a production alliance with its partner Nissan as part of attempts to get relations with the Japanese carmaker back on track.

ELECTRIC BOOST

Renault said sales in Europe fell 2.9% in the third quarter, outperforming a broader 5% drop in the market, and there was a further improvement in September with an 8% jump in its sales.

Renault sold 27,000 Zoes in the third quarter and sales chief Denis le Vot said the company had the capacity to make 10,000 EVs a month

It highlighted soaring sales for its small electric car Zoe at a time when it is planning to expand its range of electric vehicles (EVs) with larger, sportier models under its Megane brand.

Renault sold 27,000 Zoes in the third quarter and sales chief Denis le Vot said the company had the capacity to make 10,000 EVs a month.

One weaker spot for the carmaker, however, remained its sales to partners. Renault produces cars and diesel engines for other manufacturers at some of its factories and is still losing ground in this area.

It also said on Friday it was terminating a production collaboration with Fiat Chrysler ahead of the latter's merger with French rival PSA Group, and was now seeking other partners.

Renault's financial strength has been a central focus for analysts and ratings agencies alike as it tries to turn its business around, both to improve its profitability and prepare for the impact of stringent emissions regulations.

The company said it had drawn down 3 billion euros out of its 5 billion euro loan guaranteed by the French state, a measure put in place during the pandemic.

The carmaker said it had liquidity reserves of 15.2 billion euros at the end of September, down 1.6 billion euros from the end of due to debt repayments and working capital needs.

But it still expects its automotive division to produce positive free cash flow in the second half of 2020.

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