Renault’s green IPO hitch is blessing in disguise

Eyes on the road. Renault CEO Luca de Meo has just cancelled a public float he doesn’t need in a market environment he doesn’t like. The French carmaker’s boss had hoped to clinch a valuation of up to 10 billion euros for Ampere, its recently spun-off electric-vehicle division. That’s equivalent to Renault’s current market capitalisation. De Meo backtracked on the listing plan on Monday, blaming market volatility and “childish” investors’ doubts on the EV market’s long-term prospects. Ampere’s initial public offering (IPO) setback is in reality a blessing in disguise.

Under de Meo, who took over in July 2020 and is pushing through an aggressive turnaround plan, Renault has exceeded its cash-generation target in each of the past two years. The group is sitting on some 4 billion euros of net liquidity, according to Jefferies. That’s more than enough to finance Ampere’s development until 2025, when it is expected to break even.

Europe’s green car industry faces increased competition from cheaper Chinese vehicles, while European governments are wobbling on the subsidies needed to encourage price-conscious consumers to go green. De Meo, however, remains confident that the regulatory constraints the European Union has imposed on fuel-powered cars, including CO2 targets set at 50 grams per kilometre per car from 2030, will support the strong growth of electric cars.

In such a challenging market, an IPO would have been a distraction. De Meo’s goals are ambitious both for Ampere’s top line and its cost base. He plans to increase revenue by 30% a year until 2031, well above a forecast 18% annual growth for the sector globally, and shrink the cost of making an electric vehicle by 40% in the next five years. Ampere will need a focused management to meet such tough targets.

Moreover, a listing would have further complicated Renault’s holding company structure. De Meo has already split the group along five different businesses including Ampere. And Renault still sits on a 40% stake in $16 billion automaker Nissan Motor that it plans to partially offload.

Japanese partners Nissan and Mitsubishi, who had planned to invest a total 800 million euros in Ampere, will have to decide whether they still want to proceed now that the stock market listing is no longer on the agenda. But they remain interested in an industrial cooperation for Renault on electric cars, so they would have reasons to go ahead nonetheless. De Meo also harbors plans to strike a deal with larger German rival Volkswagen to create a joint platform for mid-size urban vehicles that would help drive down costs further.

The IPO plan may be revived in the future, if and when Ampere shows it can deliver on its targets. For now de Meo has his priorities in the right order by focusing on Ampere’s potential customers, rather than its potential investors.