Renault And Nissan Inch Closer To A Power Imbalance Resolution

(Bloomberg) --

Renault and Nissan may finally be on the cusp of resolving a source of tension that’s been weighing on their alliance for years.

Nissan is willing to invest as much as $750 million in Renault’s planned electric-vehicle business, Bloomberg reported this week. In exchange, the French manufacturer is open to paring its ownership of Nissan to 15% over time. This would address a power imbalance that’s long bothered executives in Japan: Renault has a 43% stake in its bigger partner, with voting rights, while Nissan holds 15% of Renault and has no voting rights.

It wasn’t entirely clear the last few years that this alliance would survive the 2018 toppling of Carlos Ghosn, who at the time was chairman of both companies. The globetrotting executive was widely seen as the glue that held the group together. Renault registered a record loss two years ago, while Nissan recorded its biggest fiscal-year deficit in two decades.

While neither company’s fortunes are now ironclad, CEO Luca de Meo colorfully declared last year that Renault was “back from hell.” He and his counterparts at Nissan presented a €23 billion ($22.3 billion) electrification plan in January that indicated the alliance may well have staying power in the face of their costly and complicated transitions away from the internal combustion engine.

Executives emphasized burden-sharing with respect to developing next-generation batteries, automated-driving features and software. Since then, Renault has been exploring carve-outs of its EV and combustion-engine businesses, betting this will make it easier for those operations to raise outside funds. To pull this off, the company needs the backing of its Japanese partner. Nissan is using this as leverage to ensure its demands for a more balanced alliance structure are met. De Meo held marathon talks in Japan over the weekend with executives including Nissan CEO Makoto Uchida to broker compromises.

These negotiations haven’t concluded, and there’s no guarantee a deal will get done. It’s nevertheless difficult to imagine them going completely awry. These two companies need one another to remain relevant in the electric age. Renault and Nissan’s biggest rivals have all subscribed to the notion that pairing up is the way forward. Volkswagen, already a house of brands on its own, has partnered with Ford on both electrification and self-driving technology. General Motors and Honda have forged a similar relationship. Toyota is developing EVs with Subaru and fuel cell vehicles with BMW. PSA Group and Fiat Chrysler merged to form Stellantis last year.

There’s a lot of savings to be had from pooling purchasing of batteries and raw materials, and not doubling up investments in the same technologies.

“There’s no reason the alliance can’t flourish despite previous tensions between the two companies,” Michael Dean, an analyst at Bloomberg Intelligence, wrote in a report Thursday. Carmakers are “clamoring to collaborate with each other given the huge costs associated with the transition to BEVs, e-mobility, digitalization and autonomous driving.”

While Nissan may buy back some of its shares from Renault, it's highly unlikely this happens right away. Neither company’s stock price is where it was before the pandemic. One option being discussed is Renault placing the shares it owns in a trust and giving Nissan the right of first refusal for any stock, according to a person familiar with the talks. And there are several other sticking points at play, including Nissan’s reluctance to allow Renault to possibly transfer combustion-powertrain technology to a Geely-Volvo Car joint venture.

De Meo is trying to secure an agreement with Nissan by Renault’s capital markets day on Nov. 8. That’s an ambitious deadline, but both companies are signaling some willingness to finally work this out.

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