Renault braced for more woe after €8bn loss in 2020

Ongoing Covid-19 restrictions and a scarcity of semiconductors threatens this year's results

Renault expects another challenging year as traditional car makers come under increasing pressure.

Renault has braced investors for another challenging year as lingering Covid-19 restrictions and supply-chain challenges threaten the French carmaker coming off a record annual deficit.

The car giant reported a net loss of €8bn for 2020, worse than the €7.85bn deficit projected by analysts. Much of the damage was done during the first half, when lockdowns crippled auto shipments. A scarcity of semiconductors now poses risk to this year’s results.

“2021 is set to be difficult given the unknowns regarding the health crisis as well as electronic components supply shortages,” chief executive Luca de Meo said. “The priority is profitability and cash generation.”

Renault said business improved significantly during the final six months of last year, when it generated an operating margin of 3.5% and positive automotive operational free cash flow.

Mr De Meo took over in July after his predecessor was ousted as part of the fallout from the 2018 arrest of former leader Carlos Ghosn. The CEO is now pushing through plans to shore up profits, repair the troubled partnership with Nissan and cut costs by closing sites and eliminating 14,600 jobs.

The results for last year were weighed down by Nissan, which accounted for almost €5bn of the loss, mostly accumulated during the first half.

While Renault didn’t give a detailed outlook for 2021, it warned a global bottleneck in auto chips could cut its car production by 100,000 vehicles this year, with the shortage reaching its peak in the second quarter.

Semiconductor crunch

The semiconductor crunch that has battered the auto sector leaves carmakers with a stark choice: pay up, stock up or risk getting stuck on the sidelines as chipmakers focus on more lucrative business elsewhere.

Car manufacturers including Volkswagen, Ford and General Motors have cut output as the chip market was swept clean by makers of consumer electronics such as smartphones – the chip industry’s preferred customers because they buy more advanced, higher-margin chips.

The semiconductor shortage – more than $800 worth of silicon is packed into a modern electric vehicle – has exposed the disconnect between an auto industry spoilt by decades of just-in-time deliveries and an electronics industry supply chain it can no longer bend to its will.

Carmakers are responding to the shortage by lobbying governments to subsidise the construction of more chip-making capacity.

Volkswagen’s potential stock market listing of its Porsche brand is also being viewed as a strategic watershed moment, indicating the unprecedented upheaval of the motor industry may only just be beginning.

• Bloomberg and Reuters