Renault is betting the market for gasoline cars will continue to grow

Renault in open talks about alliance with Nissan and Mitsubishi, CFO says

Renault sees the internal combustion engine continuing to play an important role in its business in the coming years, according to a top executive at the French automotive giant.

On Tuesday, it was announced that the Renault Group and the Chinese company Geely has signed a non-binding framework agreement to establish a company focused on the development, production and supply of “highly efficient hybrid and ICE powertrains. [internal combustion engine] powertras.”

According to Renault, both itself and Geely will have a 50% stake in the business, which will consist of 17 powertrain facilities and five research and development centers.

Speaking to CNBC’s Charlotte Reed on Tuesday, Renault Chief Financial Officer Thierry Pieton tried to explain some of the reasons behind the planned partnership with Geely.

“In our view, and according to all the research we have, there is no scenario where ICE and hybrid engines represent less than 40% of the market with a 2040 horizon,” he said. “So actually … the market will continue to grow.”

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The tie-up with Geely comes as Renault plans to launch an EV spin-off called Ampere.

According to Renault, France-based Ampere “will develop, manufacture and sell fully EV passenger cars.” It sees an initial public offering on Euronext Paris, which will take place in the second half of 2023 at the earliest, subject to market conditions.

During his interview with CNBC, Pieton touched on the need, as he sees it, for different types of vehicles. “It is very important to have, at the same time, develop our electric vehicle business on the one hand – with Ampere – and build a sustainable source of ICE and hybrid powertrains.”

This is why Renault is going to merge with Geely, he added, explaining that the move represents an “absolute slam dunk” from a business and financial point of view.

This is because, says Pieton, it creates “a world supplier of ICE and hybrid powertrains with around 19,000 employees worldwide, spanning 130 countries.”

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In comments sent to CNBC via email, David Leggett, an analyst at GlobalData, said that automakers could still enjoy profits from sales of vehicles with internal combustion engines.

“Margins are generally higher than electric vehicles, which are relatively expensive to manufacture,” he said.

“The gap will eventually narrow as the EV volume increases sharply and unit costs on the main EV components drop significantly, but there are still many profitable efforts made in ICEs and hybrids and will be for some time to come,” he added.

“Manufacturers need to be flexible in their powertrain offerings according to market needs – which vary around the world.”

Renault’s continued focus on internal combustion engines comes at a time when several major economies are moving away from fossil fuel-powered vehicles.

England, for example, wants to stop the sale of new diesel and gasoline cars and vans by 2030. This will require, from 2035, all new cars and vans to have zero tailpipe emissions.

The European Union, which the UK will leave on January 31, 2020, is pursuing a similar target. In the United States, California bans sales of new gasoline-powered vehicles from 2035.

Stellantis CEO slams 'purely dogmatic' EU ban on combustion engine cars

Such targets have become a major talking point in the automotive industry.

In a recent interview with CNBC, Its CEO Star was asked about EU plans to phase out sales of new ICE cars and vans by 2035.

In response, Carlos Tavares said that “it is clear that the decision to ban ICE is purely a dogmatic decision.”

Elaborating on his point, Stellantis chief said he would suggest that European political leaders “become more pragmatic and less dogmatic.”

“I think there is a possibility – and a need – for a more pragmatic approach to managing the transition.”

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