France's two automakers, PSA Group and Renault, have seen their fortunes wax and wane over the years, but under CEO Carlos Tavares, PSA has become the envy of the industry — and the favorite of the stock market.
Renault, meanwhile, has produced steady growth but hasn’t captured the imagination of investors. The battle is hard-fought, with both companies competing in the same mainstream segments.
Last week, Tavares delivered a double shot of good news. His audacious takeover of Opel last year has born fruit far ahead of schedule, with Opel making a first-half profit of 502 million euros. Excluding Opel, PSA's automotive operating margin was 8.5 percent, a surprising level for a mass-market manufacturer that is heavily tied to the fiercely competitive European market.
Also PSA passed Renault in market capitalization for the first time since 2009 -- 21.5 billion euros to 21.3 billion euros. And in the past two months PSA edged out Renault in French market share, with 31 percent in June compared with 30.6 percent for Renault. PSA’s share price has nearly tripled under Tavares, to about 21 euros on Friday. In the same time period, Renault shares have inched upward from about 60 euros to 74 euros.
Renault’s automotive operating margin was a healthy 4.5 percent, but that four percentage point spread has drawn the notice of analysts.
Addressing what he called "the elephant in the room," an analyst from French investment bank Societe Generale on Friday asked Renault operations chief Thierry Bollore how he planned to catch up.
Analysts are asking the same question of other automakers. "How much more money could VW make if it was to execute on efficiency like Carlos Tavares at PSA does?" Evercore ISI said in a note to investors.
Tavares could have been applying his wizardly at Renault, where he was chief operating officer until 2012, when he left after angering CEO Carlos Ghosn for saying he wanted to run his own car company. Ghosn remains CEO at Renault, charged with figuring out how to ensure the alliance with Nissan endures after his retirement, a task perhaps given more urgency with the unexpected death of Fiat Chrysler chief Sergio Marchionne.
Bollore, who is the first clear No. 2 at Renault since Tavares's departure, said PSA’s performance is a powerful incentive and vowed to work hard to catch up. "First of all, we are glad to see our national competitor doing well,” Bollore said. "It gives us a high motivation to close the gap."
Bollore noted that Renault's global scope meant that some of its businesses were "dilutive," including in emerging markets and electric vehicles, while PSA is heavily concentrated in Europe and has not yet spent heavily on electrification.
Nonetheless, he added: "We are observing clearly that we have opportunities for better performance, in terms of cost and price and products, and this will be one of my focuses from today."