StockBeat: Sometimes You Just Have to Say Renault, Nault, Nault

© Reuters.

By Geoffrey Smith

Investing.com -- Europe’s automotive sector plunged on Friday after France’s Renault (PA:RENA) slashed its outlook for 2019, citing the weakness of the European economy and the cost of introducing cleaner engines.

Renault’s own shares fell as much as 15% before recovering a little to trade down 12.1% by 5:30 AM ET (0900 GMT), after acting CEO Clotilde Delbos indicated revenue this year would come in 1 billion euros under previous guidance, with operating profits taking a hit of around 600 million.

The company now sees sales falling as much as 4% this year, instead of staying roughly flat. Under the new guidance, this year’s free cash flow is likely to be around -700 million euros, something that may strain the company’s credit rating (although Delbos, who doubles as chief financial officer, played down suggestions of a downgrade on Thursday’s hastily-arranged analyst call).

The news wiped out all of Renault’s gains for year and put it firmly at the bottom of the CAC 40 (which also had bad news from Danone (PA:DANO), Remy Cointreau (PA:RCOP) and Thales (PA:TCFP) to digest). It also dragged down rivals Fiat Chrysler (MI:FCHA), Peugeot (PA:PEUP) and Volkswagen (DE:VOWG_p).

The reasons are depressingly familiar: the company is heavily dependent on Europe, where its sales have been hit not only by macroeconomic weakness, but also by the introduction of tighter emissions standards, which have forced it to invest more in cleaner engines.

Renault (PA:RENA) was a late, reluctant and not particularly distinguished convert to the now largely-discredited diesel technology, in a continent where over 400,000 lives were shortened by air pollution in 2016, according to EU research published earlier this week.

The developments are another stark reminder of the existential challenges facing the European car industry in general and Renault (PA:RENA) in particular, given the way its alliance with Nissan has frayed in the last 12 months. They come only a week after chief executive Thierry Bollore was forced out, with the aim of restoring a relationship on which Renault depends for its bottom line.

Like many others in the sector, Renault (PA:RENA) will be relieved if the U.K. can leave the EU without causing further harm to the European economy. However, Thursday’s figures suggest that Renault is going to need much more than a smooth Brexit to turn itself around.