Renault-Nissan CEO Carlos Ghosn has promised that the alliance partners will break into the top three in global vehicle sales by as early as 2018, leaving either Toyota, General Motors or Volkswagen Group in the fourth place position currently occupied by the French-Japanese automaker.
A lot has changed since Ghosn made that commitment in 2014. The UK, which is a production hub and key sales market for Nissan, has decided to exit the European Union. Sales in China, where Renault has only recently established a foothold, are slowing. Big expansion plans in Russia and Brazil, Renault’s second-largest market after Europe, have so far failed to pan out as deep recessions have caused car demand to collapse in both markets.
New opportunities are also emerging though. Because of models such as the new Kwid SUV, Renault is the top-selling European automaker in India, where roughly a dozen brands compete fiercely over the remaining third of the market not controlled by Maruti Suzuki and Hyundai. Renault is also in advanced talks to "considerably intensify" its operations in Iran now that sanctions have been lifted. The Middle East's largest car market is forecast to grow 10 percent a year to reach 2 million vehicles by 2020.
Ghosn was also the first executive in the industry to bet correctly on the long-term trend toward zero-emission cars. The Nissan Leaf is the world’s top-selling electric vehicle, while the Renault Zoe ranks as Europe's No. 1 battery-powered car. The alliance partners have sold more than 350,000 EVs from its global lineup, which has grown to six models since the Leaf debuted in December 2010. This milestone puts Renault-Nissan ahead of the curve at a time when most of its competitors don't even have a single dedicated, purpose-built EV on the market.
Yet it looks as if the only thing that can help the alliance break into a coveted top three spot in global car sales is its planned acquisition of a 34 percent stake in Mitsubishi, which has been hurt since admitting in April that the company cheated on fuel economy tests. That stake would give Renault-Nissan de facto control over its scandal-hit rival and put the combined global sales volume of the larger alliance in the same range as Toyota and VW Group. "We have the potential to be in the top three," Ghosn said in May during a press conference to announce his plans to spend $2.2 billion to bail out Mitsubishi.
Given that Renault-Nissan, which includes those namesake brands plus Alpine, Dacia, Datsun, Infiniti, AvtoVAZ's Lada and Samsung, sold a combined 8.5 million vehicles last year, it needs a game-changing move like the Mitsubishi deal or another significant merger or acquisition to have a legitimate chance of joining the 10-million-unit-a-year club. A deal of that proportion, however, can present some big issues. While a pro-forma addition of volumes is common in such transactions, IHS Automotive principal analyst Ian Fletcher's estimates still treat Renault-Nissan and Mitsubishi as stand-alone companies, at least until the point when the deal goes through. When asked about the potential risks and rewards from Renault-Nissan's planned deal with Mitsubishi, Fletcher said: "It could be positive but equally it could be negative. Decisions that may be taken by Renault-Nissan and Mitsubishi include pushing back replacement vehicles to gain greater synergies, deciding not to move forward with some models or adding vehicles, which Mitsubishi may not have been able to afford to develop alone."
Spread too thin?
The question is whether the alliance, and Ghosn as its dual CEO, might be stretching itself too thin. While Nissan is on course to purchase a third of money-losing Mitsubishi, the alliance, which spent over 2 billion euros to take control of AvtoVAZ, needs to participate in an 85 billion ruble (1.16 billion euro) recapitalization of the struggling Russian automaker. Although the alliance says synergies between Renault and Nissan totaled 4.3 billion euros last year -- a figure that is not independently verifiable -- analysts feel progress among legacy brands has been slow. Dominic O'Brien of Exane BNP Paribas sees the shares fully valued at their current level of about 70 euros and acknowledged that financial markets are growing increasingly impatient with a man once considered to be the world's most talented car executive. "The progress of the alliance certainly frustrates the investors we speak to in the market at least," O'Brien said.
Market watchers says that the alliance's competitiveness would be strengthened if more parts were shared between Renault and Nissan, yet here too progress is slow. Ghosn has run Renault for more than a decade and Nissan for more than 16 years, but the partners only began to forge plans to consolidate architectures three years ago. As a result, it will take until 2020 before 70 percent of the combined volume is built off common platforms.
"It took many years for Nissan to use Renault's know-how in the B segment -- the next-generation Micra is finally going to use the Clio 'expertise'," said Felipe Munoz, global automotive analyst at market research firm JATO Dynamics. Conversely, Renault chose not to use established Nissan platforms. "Renault has focused on Samsung to develop its midsize sedans, while Nissan has proven to be successful with its Sentra and Altima sedans," Munoz added.
It seems that much more mystifying then that Ghosn is looking to add a ninth brand with Mitsubishi. Scale may be crucial to limiting costs, but integrating another carmaker into the alliance can lead to greater complexity, which can erode savings from joint purchasing and development. An exchange at the annual news conference on the state of the Renault-Nissan and Daimler partnership in September 2015 showed the difference in the respective philosophies of the two carmakers. While Ghosn remained true to his decade-old pragmatism, saying he would "always say yes" when it comes to integrating further manufacturers into his fold given the right conditions, his more cautious German counterpart struck a different, much more balanced note.
For Daimler CEO Dieter Zetsche, potential benefits stemming from greater purchasing, development and manufacturing savings had to be weighed against challenges from adding an additional layer of complexity.
"When you are already at significant volumes, the incremental economic gain in adding more volume is smaller, but the complexity when you add more partners gets bigger," Zetsche told reporters. "So there is a breaking point. It might be that you can add another two, three or four more [partners] before you get to that point, it might be that you are already there."
While larger rivals Toyota and Volkswagen have more cleanly separated their portfolios of brands, Renault-Nissan already has a fair amount of overlap, effectively meaning that certain markets have to remain off limits in order not to invade each other's space -- typically not a problem when they are not targeting the same customers. The alliance already has three budget brands -- Dacia, Datsun and Lada -- and if Mitsubishi is added the alliance will have a trio of mass market marques.
And while analysts believe Dacia is highly profitable, maintaining its cost leadership over the midterm to long term is a difficult proposition. The real money to be made in the industry is selling emotional cars with an aspirational or premium image. Yet Renault is only now getting ready to launch its Alpine performance brand, years after PSA Group has designated former Citroen subbrand DS to become a stand-alone unit. Infiniti, Nissan's upscale marque, which pushed back its half a million unit sales target by three years to 2020, is an afterthought in many parts of the world.
Granted, the kind of moonshot targets Ghosn lays out are nothing unusual. All CEOs need to have a grand vision for the future of their companies, in part to boost morale and foster a joint sense of purpose among employees. When he pushed back Renault's 5 percent margin target by one year to 2017, no one expected the group would deliver two years early. But not all of the big gambles have paid off so far.