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Renault shares slide after it warns on gloomy outlook

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Via Financial Times

Renault shares fell sharply after the French carmaker cut its sales and profit guidance for 2019 as it grapples with tough market conditions and struggles to reboot its alliance with Japan’s Nissan.

Shares dropped nearly 15 per cent in early trading in Paris on Friday, while rival automakers including Daimler and Fiat Chrysler recorded more moderate declines.

On Thursday after markets had closed in Paris, Renault said sales would fall 3 to 4 per cent this year because of “an economic environment less favourable than expected and in a regulatory context requiring ever-increasing costs”. 

The car industry has suffered from faltering demand worldwide and tough new European emission rules, which threaten their profitability and force up research and development costs. 

“Regulation forces us to improve our cars in order to meet new emission rules,” said Clotilde Delbos, Renault’s recently appointed interim chief executive.

Sales had been expected to stay roughly flat with guidance having already been cut in July when Renault blamed falling sales as well as the decline of diesel sales and poor performance from Nissan, which buys some engines from Renault as part of their alliance agreement, for the results.

Operating margin should now be about 5 per cent, compared with 6 per cent previously, added the carmaker on Thursday. Operating free cash flow should be positive in the second half, said Renault, while not guaranteed for the full year.

In the earlier than expected third-quarter update, Renault said its revenues had come in at €11.3bn, a fall of 1.6 per cent over the same period last year, adding that it was also reassessing its midterm strategic plan.

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Arndt Ellinghorst, analyst at Evercore ISI, said: “The most worrying thing is that leaving 2019 on this level of profitability paints a rough outlook on what might come in 2020 when markets will more likely be tougher and CO2 rules will add significant incremental costs to the system.”

Last week, Renault’s board ousted its chief executive, Thierry Bolloré, as it looked to cut another link to former boss Carlos Ghosn and ease tensions in its alliance. Ms Delbos took over on an interim basis.

While some analysts have concentrated on the risks to the stability of Renault, others have speculated about the possibility of the revival of an aborted merger attempt with Italian-American carmaker Fiat Chrysler this year.

Ms Delbos said on Thursday evening that the deal with Fiat Chrysler “is as attractive as ever” particularly considering the current tough market environment that forces carmakers to try to share R&D and capex costs.

Ms Delbos said forecasts were depressed by weaker markets in Turkey and Argentina and stressed the importance of pushing for synergies with Nissan. Renault, Nissan and their alliance has been badly shaken by last November’s arrest of Mr Ghosn.

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