Renault plans no big price cuts despite Tesla challenge

Renault does not plan to drastically cut prices on its electric vehicles, including the recently launched Megane E-Tech, and follow US rival Tesla in what the French carmaker’s finance chief on Thursday called a downward “spiral”.

Tesla late on Wednesday posted its lowest quarterly gross margin in two years, missing market estimates, after slashing prices aggressively in markets including the United States, China and Europe to spur demand and fend off rising competition.

Tesla shares were down 6.6% in U.S. pre-market trade and fell 7% in Germany on Thursday, weighing on the sector and pushing Renault stock down by a similar amount amid fears of a looming price war.

Renault brand CEO Fabrice Cambolive said earlier this week the brand would be reviewing prices worldwide, calling Tesla’s price cuts a warning and a challenge to the whole industry.

But group finance chief Thierry Pieton said Renault did not need to follow Tesla’s move, even though the Tesla Model 3 in France now starts at 41,990 euros ($46,017) after last week’s price cut, compared with 42,000 euros for the Megane electric.

“There is no big incentive to go and cut the prices…and go in a spiral that some of our competition is following,” he told analysts. “If it results in the short term in slightly lower volumes, so be it.”

He said demand for EV models had been softer in January and February after a reduction in government subsidies in several countries last year, but March was strong.

CLOSING THE GAP

Analysts said Renault may have to cave in on the pricing front, which would impact margins.

“Renault may be forced to lower its prices and find new efficiencies via its new manufacturing plants in northern France,” said Orwa Mohamad at Third Bridge.

“Advanced software and cost are going to be the key differentiators in the EV market over the next few years,” the analyst added, noting that Renault’s recent partnership with Qualcomm (QCOM.O) aimed to close the gap with Tesla on the software front.

Renault ranked as the third EV brand for sales in Europe behind Tesla and Volkswagen (VOWG_p.DE) last year.

First-quarter revenues grew 30% in the first quarter to 11.5 billion euros, above market expectations, thanks to a rebound in sales following four years of consecutive declines and higher prices imposed in 2022.

Boosted by demand for several premium models, including recently launched Arkana and Austral SUVs, the group posted a 14.1% increase in sales over the period to 535,000 units.

The carmaker, which was hit harder than most rivals by the COVID-19 crisis and a global chip shortage, is in the middle of a turnaround and is betting on premium cars and electric vehicles to boost profits.

It is renegotiating a long-standing alliance with Japan’s Nissan and plans to list its EV unit later this year.

It is also ramping up the launch of new models to spur growth. It plans to launch an SUV version of its Espace minivan and a restyling of its best seller Clio city car this year, and 12 new models in 2024.

($1 = 0.9127 euros)