Nissan sees a chance to reshape its alliance with Renault by backing new EV businesss

Nissan is ready to invest $500 million to $750 million in Renault's electric vehicle business, viewing the French automaker's reorganization as a chance to reshape their decades-old alliance, a person familiar with the matter said.

In exchange for backing the entity being set up by Renault CEO Luca de Meo, Renault is willing to sign onto a plan to reduce its ownership of Nissan to 15 percent, from the current 43 percent, over time, said the person, who asked not to be identified because negotiations are ongoing.

The moves would alleviate an imbalance that has been a source of friction for years. Renault rescued Nissan in 1999 and sent in Carlos Ghosn, who eventually became CEO of both automakers and the chairman of their alliance. He later added Mitsubishi Motors to the partnership, but was arrested in 2018 on charges of under-reporting his compensation. He escaped Japan in December 2019 and is currently in Lebanon.

Nissan, which owns 15 percent of Renault and lacks voting rights, sees supporting de Meo's transformation as a way to repay Renault for coming to its aid more than 20 years ago, the person said.

Nissan CEO Makoto Uchida and Chief Operating Officer Ashwani Gupta held marathon discussions over the weekend with Renault's de Meo and Francois Provost, senior vice president of international development and partnerships.

A representative for Nissan declined to comment beyond a joint statement issued with Renault on Monday in which Nissan said it's considering investing in Renault's EV entity. The two automakers also said they are working on "structural improvements to ensure sustainable alliance operations and governance."

A spokeswoman for Renault declined to comment beyond the statement, which the companies issued after reports about the executives meeting in Japan to discuss the EV carve-out, shareholdings and other issues.

EV stake

Nissan is ready to take as much as a 15 percent stake in the EV and software business that Renault said in May would be based in France and employ about 10,000 people by next year.

Renault also outlined plans to create an entity dedicated to developing and producing combustion and hybrid powertrains, which will be headquartered outside France and also have around 10,000 employees.

Nissan's Uchida and Gupta and Renault’s de Meo and Provost spent all day Saturday and Sunday speaking on the sidelines of the Formula 1 Japanese Grand Prix in Suzuka and nearby Nagoya. The four flew to Tokyo together and continued discussions on Monday in Yokohama, where Nissan is headquartered.

Renault's sale of its stake in Nissan will not happen right away. One option being discussed is placing shares in a trust and giving Nissan the right of first refusal for any stock that is offered for sale, according to the person familiar with the talks.

While Nissan may buy back some of its shares, Renault has no plans to sell right away because it would have to take an impairment by selling at current prices, and will seek an orderly disposal of stock.

Any agreement will include provisions preventing Renault from selling shares to a competitor or to an activist investor, the person added.

Renault's voting rights will also be capped immediately when the deal goes into effect. The changes will require a new operating agreement between the companies, the person said.

Nissan's position

The block of shares to be set aside is currently worth about 4 billion euros ($3.9 billion). Nissan had 1.47 trillion yen ($10.1 billion) of cash and equivalents at the end of June, giving the company plenty of leeway to invest in Renault’s EV business and repurchase some of its shares.

Nissan's profitability and sales are better than forecasts, and the company will likely raise its outlook when it reports quarterly results in early November, the person said.

Renault is trying to secure an agreement with Nissan before its capital markets day around the same time, on Nov. 8. One sticking point in negotiations is Nissan’s reluctance to allow Renault to transfer combustion-powertrain technology to Aurobay, a joint venture between Volvo Cars and China’s Zhejiang Geely Holding Group, and other investors.

The French state, which has a 15 percent shareholding in Renault, also would need to approve the companies' plans.

Some of the hurdles for the combustion-powertrain deal include securing blessing from the Japanese government, and from Dongfeng Motor Group, Nissan's long-time partner in China.

Uchida has been briefing officials at Japan's Ministry of Economy, Trade and Industry on the implications of Renault's carve-outs and potential tie-up with Aurobay.

Talks are focused on Renault retaining a minority stake in the legacy business and possibly aiming for an initial public offering, people with knowledge of the matter have said.