Renault cuts 2021 production outlook further as chip shortage shuts plants

Automotive Industry

Source: Automotive News Europe, 2021-10-22

Renault Group said production losses in 2021 because of a global semiconductor chip shortage would be far larger than previously forecast, but maintained its profit outlook thanks to high car pricing and cost cuts. 

The shortage of chips, used in everything from brake sensors to power steering to entertainment systems, has led automakers around the world to cut or even suspend production, pushing up vehicle prices.

Like its peers, Renault has focused production on more profitable models.

The automaker said its production losses for the year would now be close to 500,000 vehicles, or more than double the 220,000 units forecast in early September. More than 170,000 units were lost in the third quarter.

The automaker said that by the end of September its order book had hit a 15-year high, for the equivalent of 2.8 months worth of sales. 

Renault said higher car prices meant that despite a drop of 22.3% in global sales, third-quarter revenue had fallen by 13.4% to €8.98bn ($10.4bn) from 10.37bn a year earlier.

The company reiterated that its full-year operating margin would be around the same as the 2.8% it reported for the first half of the year. 

CFO and deputy CEO Clotilde Delbos told analysts on the earnings call that cost cuts and higher pricing allowed Renault to retain its guidance, but she noted that the higher impact of the chip shortage gave the company “less room to maneuver.”

Delbos said that Renault would move faster on further phases of a €2bn ($2.3bn) cost-cutting plan put in place in early 2020.

“Our cost-cutting activities have been amplified, and we have no doubt that the €2bn savings will be achieved in a few weeks,” more than a year ahead of schedule, she said on the call.

Recent moves include an announcement that the group would lease smaller and less-expensive offices in the Paris area, and reduce its overall real estate footprint.

Delbos said that an unexpected resurgence of COVID-19 in Malaysia over the summer led to the new, higher production loss figures. The country was under a five-week lockdown, shutting key semiconductor foundries there.

“This is now over,” she said of the disruption. “We should go back to normal production” in Malaysia, adding that production constraints on Renault should be much less in November and December. 

During the third quarter, full-electric, plug-in hybrid and full-hybrid models made up more than 31% of sales, a 29% increase Renault said. Sales of the Zoe small EV dropped to around 47,000 during the period from more than 64,000 in 2020 as the aging model comes under pressure from rivals. 

But Renault said it had more than 30,000 orders for the Dacia Spring, the least-expensive EV in the group’s lineup. 

Another sales success has been the South Korean-built Renault Arkana coupe SUV, launched this spring. More than 41,000 have been ordered in Europe since March, with 56% being full-hybrid models. The Arkana also contributed to higher net pricing for the quarter, along with strong commercial van sales, Renault said.

“Arkana is doing much better than we initially expected,” Delbos said.

The automaker is on track to meet more stringent 2021 European CO2 emission targets, it added.

Renault said vehicle inventories had fallen to 340,000 cars at the end of the quarter from 470,000 a year earlier. 

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