Nissan seeks reshaped alliance through Renault EV backing

Nissan Motor is ready to invest $500m (roughly R9.08bn) to $750m (roughly R13.6bn) in Renault SA’s electric vehicle business, viewing the French carmaker’s reorganisation 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, the French carmaker is willing to sign onto a plan to reduce its ownership of Nissan to 15%, from the current 43%, over time, said the person, who asked not to be identified because negotiations are ongoing.

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

Nissan, which owns 15% 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 COO 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. Nissan said it’s considering investing in Renault’s EV entity, and the carmakers said they’re working on “structural improvements to ensure sustainable alliance operations and governance”.

A spokesperson 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. 

Renault shares gained after Bloomberg’s report, trading up 5.2% to €32.28 as of 3pm in Paris trading.

EV Stake

Nissan is ready to take as much as a 15% 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 power trains, 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.

Share Sell-Off

Renault’s sale of its stake in Nissan won’t 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 €4bn (roughly R70.8bn). Nissan had ¥1.47 trillion (roughly R183.3bn) 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 November 8. One sticking point in negotiations is Nissan’s reluctance to allow Renault to transfer combustion-power train technology to Aurobay, a joint venture between Volvo Car AB and China’s Zhejiang Geely Holding Group, and other investors.

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

Some of the hurdles for the combustion-power train 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.

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