Renault sees chip shortage hitting output

PARIS — Renault doubled its estimate for car production lost to the global chip shortage, saying the supply chain issue and rising raw material prices could curb further recovery in profitability this year.

The automaker swung to net income of 368 million euros ($437 million) during the first half, from a 7.4 billion-euro loss a year ago. Automotive operational free cash flow was close to breakeven at negative 70 million euros.

Renault now expects semiconductor constraints to cost the company about 200,000 vehicles this year, up from its previous forecast of a loss of 100,000 units.

Renault gave financial guidance for the first time in 2021, saying full-year operating margin will be roughly in line with the 2.8 percent achieved in the first half. That is just short of its 3 percent target for 2023 and well below competitors.

“I think the worst is behind us,” CEO Luca de Meo told analysts on Friday. “The auto business operating margin is back in the black so we are making money on our core business again.

Renault almost returned to positive cash flow in the first half of the year, from negative cash flow of nearly 6.4 billion euros in the year-ago period.

Chief Finance Officer Clotilde Delbos said the company’s improved liquidity position “allows us to pursue our recovery with serenity.”

Renault sold 1.42 million vehicles worldwide in the first half, 19 percent more than last year but still down almost a quarter from the same period in 2019.

Inventories at the end of the latest quarter stood at 427,000 vehicles compared with 486,000 at the end of last year. Many automakers have benefited from surging prices after the chip shortage reduced the amount of cars on dealer lots.

De Meo, a former Volkswagen Group executive who turned around the German automaker’s Seat brand, has been tasked with helping Renault turn a new page after a troubled spell.

De Meo’s recovery plan includes laying off thousands of workers, cutting the automaker’s model range, and improving cooperation on production with its alliance partners – Nissan and Mitsubishi.

Last month, Renault unveiled a more ambitious strategy for electric vehicles, betting on new, affordable versions of its iconic small cars of the past to catch up with Volkswagen in the fast-growing sector.

Renault said last month that by 2030 the Renault-Nissan-Mitsubishi alliance will produce one million EVs globally a year, up from the 200,000 they made in 2020.

Renault has lagged rivals VW and Stellantis because of its reliance on the European market, which has recovered more slowly than China or the U.S. from the initial pandemic onslaught.

The French automaker’s lineup of lower-returning mass-market vehicles also offers fewer options compared to competitors that have prioritized making more lucrative models with what chips they have available.

De Meo unveiled a turnaround plan in January that underwhelmed investors. The automaker is targeting an operating margin of at least 5 percent by mid-decade compared with a 4.8 percent return in 2019.

Stellantis, formed from the merger of Renault arch rival PSA Group and Fiat Chrysler, wants to generate a double-digit adjusted operating income margin by around 2026.

Renault is working to eliminate about 14,600 jobs worldwide and lower production capacity by almost a fifth in a bid to cut costs by more than 2 billion euros.

The company has cut 1.8 billion euros of costs and said it now expects to reach a 2 billion-euro goal by year-end, ahead of schedule.

Bloomberg and Reuters contributed to this report