How Luca de Meo plans to restore Renault's va va voom

There were many advantages in doing things this way, de Meo explains: “You find that people who have to make a plan work are very realistic about what they propose in the first place. They buy the story because it is their own. And they tend to build from the bottom up, rather than simply declaring that ‘we’ll build five million cars next year’ and then thinking of ways to make it happen.”

By the end of last year the plan was complete. It was revealed in mid-January in a media onslaught that dominated car news sources for several days, not least because of the smart decision to lead the recovery with an EV revival of the Renault 5. The plan’s many other elements are well known (and listed on these pages), but de Meo summarises them succinctly: “We refocused our money on more profitable markets and segments.”

On arrival, he says, he found a company in a difficult financial situation. A strong focus on small cars meant the ability to generate margins was limited. “I made a plan to go one segment up,” he says, “as we did at Seat, moving from the Ibiza and Arona to the Leon and Ateca, because you can better control margins and volumes that way.

“The effect of this will start to be felt next year with the arrival of the electric Mégane SUV and the replacement of the Kadjar, but the full effect won’t come until 2023-24. It will take some time, but we know we have very strong products coming. Some are no-brainers, in fact; you have to ask yourself why the previous management didn’t think of them. But there’s no point in looking too much at the past. The main thing is that our product plan is now very solid.

The world of French financial critics seems to agree. Renault’s share price has so far expanded from around £13 to £35 since de Meo’s announcement. The main point of criticism seems to be that the CEO’s forecasts – including earnings of 3% by 2023 – are regarded as too conservative, given that they hit 3.5% in the second half of last year. De Meo has always insisted that his predictions represent “a floor”, but after two failed turnaround plans in the past 10 years, he insists it’s now time to underpromise and overdeliver.

De Meo displays a kind of good-natured impatience at the tendency of some media to see nothing but production numbers. “They say: ‘Ten years ago you were making 700,000 cars at this plant and now you’re making 500,000, so you must be failing,’” he says. “That’s frustrating. It doesn’t take into account our R&D that benefits the whole country, our electric car programmes, our hydrogen projects, the software deals we have done. We are trying hard to push France into a higher part of the value chain.”

Having started his career at Renault, then moved to Toyota, Fiat (via both Alfa Romeo and Abarth), then Volkswagen, Audi and Seat, 53-year-old de Meo has been around the block despite his youthful demeanour and comparative lack of years. He accepts most of the slings and arrows of the auto business but can’t resist one dig at unrealistic visions in Renault’s past. “A few years ago, we spent ¤1 billion [£867 million] moving Mégane, Scenic, Grand Scenic, Talisman, Espace and a couple of others – six or seven big cars – to one plant,” he says. “Anyone who knows manufacturing knew it was a mess, industrially speaking. You don’t do that. We promised 300,000 cars and delivered 80,000. We are a popular brand, not credible in D- and E-segment cars, and this was a demonstration.”

But, I ask, aren’t small cars difficult too? Every manufacturer says they’re close to unprofitable. And if you can’t make money, what is their future? De Meo delivers a ‘structured’ answer.

Small cars with combustion engines are being hit badly by the high costs of meeting Europe’s ever-tougher clean-air regulations, he explains, dropping the bombshell assertion that a supermini’s combustion engine will double in price when it has to meet the punitive Euro 7 regulations expected at the end of 2025.

“There’s an entry price to clean up any combustion engine,” he explains. “You need a particulate filter containing platinum, rhodium and other expensive stuff, whether it goes onto a €15,000 Clio or a €120,000 Mercedes S-Class. Sure, the S-Class filter is a bit larger, but it’s much cheaper in percentage terms and the customer can afford to pay. But life is getting very hard for companies making small cars.

“Meanwhile, the cost of batteries is falling at about 10% a year, according to our experience. And small electric cars need smaller batteries, so they’re even cheaper in percentage terms than family-sized EVs. As combustion small car prices rise, the equivalent EV falls. The moment is approaching when the two cost curves will cross – at which point the electric car will become the more viable in Europe.”

A battle is raging right now between car makers wanting to be the first to reach this crossing point, says de Meo. It will be a huge moment because it will democratise electric cars across Europe. The company that gets there first will be a big winner. Project R5, the poster car for the Renaulution currently being productionised at top speed by Renault’s designers and engineers, is meant to symbolise this moment. “Most of the industry expects the lines to cross in 2025-26,” says de Meo. “But maybe we can be first if we engineer a very smart project. It’s a race against time.”

Turning to bigger cars, de Meo expects the trend towards SUVs and crossovers to continue, even though these cars aren’t ideal for electric powertrains because of their big frontal areas and block-like shapes. “Every kilometre you gain through good aerodynamics is valuable,” he says. “But people just don’t want to sit in low cars unless they’re in an Alpine A110 or a Lamborghini.”

One important trend he sees for electric vehicles is the rise of the crossover coupé, along the lines of the Cupra Formentor he launched at Seat. “Those are trendy cars,” he says, “and as EVs they don’t need a long bonnet. Because they won’t have transverse front-wheel drive, they can also have the wheels set properly at the corners of the body. They can have proper big wheels, too. My bet is we will have a generation of cars that ride fairly high, on very big wheels, but with very good aerodynamics. This is one of the things we are trying to do with Alpine.”

De Meo has said many times that EVs are the future but shows a hint of pique with companies (he doesn’t name Ford) who say they will make only EVs after 2030. “Maybe that’s okay if you want to be a niche manufacturer,” he says. “But I don’t believe all Europeans will be ready for EVs by 2030. You just have to go to the south of Spain, or the south of Italy. There’s no purchasing power to buy electric. And there’s no infrastructure.”

However, de Meo is quite sure the combustion engine will be dead after Euro 7 begins – unless it’s part of a full hybrid system. Even 48V mild-hybrid systems won’t be clean enough to meet the standards, he believes, so he’s pleased Renault never invested in that technology

We conclude with a chat about China. Renault recently ditched its Chinese operations (“pretty much catastrophic”) but has appointed a proven market specialist to “study the strategic options” of a better-orchestrated return.

“I consider China the most advanced and competitive car market in the world,” de Meo declares with unmistakable admiration. “That’s not just because of its size, but because of its progressive attitudes. The Chinese want to innovate. They know they won’t catch up with our 120 years of automobile history by just doing what we do. They want to jump ahead; EV technology is their huge opportunity, especially since they control the battery value chain.”

To succeed in China again, de Meo says, Renault will need to match the Chinese on next-generation technology and bring something the others don’t have. Then you have to partner with one of the big companies, creating technology that can be exported to other parts of the world. Given the complexities, de Meo admits that Renault’s re-establishment in China will be tough – and it may take years. Still, you get the feeling that he will relish the challenge. Add it to his in tray, then, with all the other pressing priorities.

Mitsubishi: Renault to the rescue

Mitsubishi, the third member of the Renault-Nissan-Mitsubishi Alliance, had intended to withdraw from Europe, citing the unfeasibly large costs of meeting ever-tougher clean-air laws. That was until Luca de Meo contacted Mitsubishi CEO Takao Kato, and presented him with an offer to manufacture Mitsubishi-based products in his own factories.

“We more or less heard about Mitsubishi’s decision in the papers,” says de Meo. “There wasn’t any discussion. So I called Kato-san and asked him to let me develop some products for him. I told him he’d get state-of-the-art products that met future legislation. I would get the economies of scale and he would be protected from paying hundreds of millions in penalties to importers and suppliers.

“Why bother? Because Renault has 44% of Nissan, which owns 30% of Mitsubishi. We are a big shareholder, so if they are not doing well, we have a problem. Besides, it felt like the right thing to do, to reinforce the Alliance.”

Alpine-Lotus deal's strong prospects

There’s one overarchingly powerful reason why the recently announced ‘memorandum of understanding’ between Alpine and Lotus over a future co-operative sports car project has a great chance of success: it’s the fact that, before he took the reins of Renault’s Alpine division, CEO Laurent Rossi was the French group’s head of corporate partnership and strategy – negotiating the deal was part of his job.

“It has been going for quite a while,” Rossi says, “but it’s still an exploration. Alpine and Lotus have common DNA – the culture of lightness is the obvious one – and we also face the same challenges in the marketplace, so it makes a lot of sense.”

Rossi says Alpine’s side of the project centres on the replacement of the A110 (“the horizon is 2025”), so it is a little early to imagine what the industrial responsibilities of a co-operative project would be like. Alpine is still visualising the project.

One thing is clear to Rossi and his team: the next version of the much-admired A110 must sell in greater numbers. He admits it doesn’t sell as well as it should. “We simply do not have enough points of sale,” he says. “Our commercial footprint is too small because we are present in too few countries.”

What’s the remedy for the short term, I wonder, given that the three-model EV strategy recently revealed in Luca de Meo’s Renaulution plan won’t kick in until the second half of the 2020s. Rossi has further versions of the existing A110 in the pipeline, he says – “we have lots of ideas and possibilities” – and he also hopes the F1 team’s adoption of Alpine branding will make a crucial difference to its success.

“F1 is a fantastic visibility platform for us,” he says. “Our group has been in F1 for 40 years, so the incremental value to Renault is smaller than to Alpine. We believe having 500 million sets of eyeballs tuning in to the Alpine traditions through the car will create demand. Our job is to fulfil it.”

Dacia-Lada tie-up creates "huge opportunity"

Under Renaulution, the linking of the Lada and Dacia brands in one business unit will not only build a division making over a million cars a year, but will also further improve economies of scale for the group’s remarkable CMF-B platform (best known as the basis of the new Clio) on which all-new Dacia-Lada models in the short to medium term will be based.

If all current plans reach fruition, says DaciaLada division CEO Denis Le Vot, the Renault Group could soon be making up to eight million cars on the same underpinnings. Le Vot is tasked with taking advantage of the “huge opportunity” to link the Lada and Dacia marques under their skins, while maintaining their pre-eminence in their respective territories. Dacia is firmly seen by the Romanians as their own product, even though it exports successfully across Europe, while Lada is proudly Russian because it is one of that country’s industrial brands with an international name.

“Dacia has become very successful as the bestselling retail product in Europe,” says Le Vot. “It is successful because it offers no less than the value customer needs, but no more. It offers the best value for money there is. And do you know what? You can use the very same words for Lada.”

In 2019, the last year before Covid affected sales, Dacia sales amounted to 600,000 units – and since then, the company has launched much-praised versions of its Sandero and Sandero Stepway models. In the same year, Lada did about 400,000 units. The mission, says Le Vot, is to “industrialise the two assets” while keeping them separate and in their own territories – Dacia in Romania and its European outlets, Lada in Russia and the CIS countries. Further export is eventually planned for Lada, but the priority for the company (which Le Vot diplomatically explains “has had some turmoil” in its history) is stability and viability in existing markets.

The big profit pull for the group, says Le Vot, is to “break through the glass ceiling” of the B-segment into more profitable C-segment models. The division’s well separated design departments are hard at work on replacements for the legendary Lada Niva and the successful Dacia Duster (both are expected to get bigger than existing models), and Dacia is also keen to launch the model it recently showed in concept as the Bigster – 4.6 metres long yet still able to be built on the group’s highly flexible CMF-B architecture.