Renault faces EU emissions challenge with its ‘cash cow’ Dacia cars unit

Renault faces EU emissions challenge with its ‘cash cow’ Dacia cars unit
Dacia’s 2018 lineup had more ground to make up before meeting the EU’s 2021 emissions targets than other brands.

By Ania Nussbaum

Renault’s Dacia has built a devoted following for its often spartan, low-cost vehicles, making it one of the French manufacturer’s fastest-growing consumer brands.

Yet the unit, which prides itself on its penny-pinching ethos, could now become a drag on Renault as it faces the costly hurdle of meeting the EU’s toughening pollution standards.

Dacia’s 2018 lineup had more ground to make up before meeting the EU’s 2021 emissions targets than other brands, according to Evercore ISI estimates.

Overhauling its models to meet the rules “could disproportionately hurt profitability,” even as Renault as a whole is better positioned than some rivals to meet the regulations, Philippe Houchois, an analyst at Jefferies in London, wrote in a research note.

The new standards are among a myriad challenges facing Renault, which is struggling to sustain its troubled alliance with Nissan while also grappling with a slump in European car demand.

Renault cut its forecast for 2019 revenue last month.

The stock has declined by almost a third in the past year.

Starting in 2020, car fleets will need to comply with new limits on carbon dioxide emissions, or face penalties.

In one scenario laid out by broker Jefferies that assumes a continuing slowdown in car sales, fines at Renault due to partial non-compliance could amount to €450m — or 17% of next year’s estimated profit.

The penalties will be based on emissions for all the cars made by the manufacturer. On average, thanks to cleaner technologies, Renault brand cars emit less carbon dioxide than Dacias.

Dacia may introduce a hybrid SUV as a step toward lowering its average emissions, according to sources. Olivier Murguet, head of sales at Renault, said “it’s hard to imagine that Dacia would remain on the sidelines of the movement” to electrify cars.

Dacia has been a bright spot for the French carmaker.

The French company doesn’t disclose profitability by brand or model, but some analysts estimate the Duster generates an operating margin of more than 10% — beating the usually more lucrative premium carmakers like Daimler’s Mercedes-Benz and BMW.

Dacia sales climbed 7% last year, while Renault-branded cars slid 5%.

Carlos Tavares, the current CEO of PSA and the former No. 2 at Renault, previously called the Romanian carmaker as a “cash cow”.

Founded in 1966 in the then-communist country, Dacia has a manufacturing base in Romania and North Africa.

Its sales account for almost a fifth of Renault’s total.

“Dacia proved that you can make money while being frugal,” said Jean-Louis Sempe, an analyst at Invest Securities in Paris.

“The low-cost business model requires very specific skills,” he said.

Still, costly investments in hybrid or electric technologies to improve Dacia’s emission performance could hurt its profit margins.

Arndt Ellinghorst, an analyst at Evercore ISI in London, reckons complying with emission targets for the next two years will cost Dacia some €671m, or €1,269 per unit, with little leeway to pass those costs on to its price-conscious customers.

A spokeswoman for Renault declined to comment on the impact of future regulation.

Renault already offers electric vehicles, including its Zoe, starting at around €23,000, and is planning to begin selling a hybrid version of its cheaper Renault Clio in 2020 — a possible litmus test for an electrified Dacia.

- Bloomberg

More on this topic

EU Commission chief to have emergency gallbladder operationEU Commission chief to have emergency gallbladder operation

Gold destined for Zurich and New York stolen in Brazil airport heistGold destined for Zurich and New York stolen in Brazil airport heist

32 hurt as firefighters battle wildfire in Portugal32 hurt as firefighters battle wildfire in Portugal

Danish police investigate after 100 gravestones vandalisedDanish police investigate after 100 gravestones vandalised

More in this Section

Tory Party chairman James Cleverly: Jamie Oliver’s restaurant collapse not about BrexitTory Party chairman James Cleverly: Jamie Oliver’s restaurant collapse not about Brexit

Cork-based delivery franchise seeks to tap online parcels surge     Cork-based delivery franchise seeks to tap online parcels surge

Elizabeth Warren is set to change US policies for business, even if she fails to secure tilt at presidencyElizabeth Warren is set to change US policies for business, even if she fails to secure tilt at presidency

Irish Whiskey wants to turn Brexit on its headIrish Whiskey wants to turn Brexit on its head


Lifestyle

Frits Potgieter is General Manager with Muckross Park Hotel and Spa.You've Been Served: Frits Potgieter, Muckross Park Hotel and Spa

More From The Irish Examiner