Renault, a leading global auto manufacturer, plans to make a significant move in the growing electric vehicle (EV) market. The company is set to sell a portion of its EV business, Ampere, through an initial public offering (IPO) scheduled for the first half of 2024. This decision has attracted attention from investors in other major car companies like Ford Motor and General Motors.
In a recent investor event held by Renault, the company outlined several ambitious goals. One primary objective is to slash the cost of producing EVs by a remarkable 40%. This reduction in cost primarily stems from advancements in battery technology and the electric powertrain. By achieving these cost reductions, Renault aims to accomplish two critical milestones: attaining a break-even operating profit margin by 2025 and a double-digit operating profit margin by 2031.
The investor event left a strong impression, as noted by Bernstein analyst Daniel Roeska in his report. However, Roeska questions the necessity of an IPO to fund Ampere. He raises doubts about the decision to rely solely on equity for funding, opting against taking on any debt. Moreover, Renault’s substantial cash reserves make the need for an IPO seem unnecessary. Roeska contends that the company could easily finance Ampere using its own cash flow.
Although the source of funding may be debatable, one undeniable fact remains: Renault’s stock is currently trading at a dismal 2.7 times the estimated earnings for 2024. Such a valuation multiple is considerably low, reflecting investor concerns about Renault’s future growth and profitability prospects in a highly competitive market.
As the IPO for Ampere approaches, the automotive industry eagerly awaits Renault’s bold move into the EV market. The success of this venture could have significant implications not only for Renault but also for other traditional car manufacturers seeking to thrive in the age of electric mobility.
The Untapped Value of Ampere: An EV Stock Comparison
As the electric vehicle (EV) industry continues to gain momentum, investors are taking note of companies with untapped potential. EV giants like Tesla and BYD have garnered attention with their impressive valuations, but there’s another player in the market that is ready to make its mark – Ampere.
Understanding the Landscape
Before we delve into Ampere’s story, let’s look at a useful point of comparison: Polestar Automotive. With its roots in Volvo and parent company Geely, Polestar has emerged as a key contender in the EV market. With a valuation of around $6 billion, it’s clear that Polestar has captured the attention of investors.
Renault, on the other hand, boasts an annual sales figure of approximately 250,000 battery-electric vehicles. In comparison, Polestar sells around 60,000 units annually. If we consider the value per car sold, Ampere has the potential to be worth an astonishing $25 billion – nearly double Renault’s current market capitalization of $11 billion.
Unlocking Hidden Value
Given the stark contrast in market capitalization between Ampere and Renault, it becomes apparent why an Ampere IPO could be a game-changer. Unlocking hidden value is arguably the best reason for Ampere to go public. By doing so, investors can finally tap into the true potential of this emerging EV player.
Furthermore, from an efficiency standpoint, selling stock in Ampere proves to be a far more effective strategy. Compared to Renault, where raising $5 billion in stock would necessitate a 50% increase in share count, Ampere could achieve the same result by selling just 20% to external investors. It’s a more streamlined approach that aligns with the current market landscape.
Reassessing Valuations
The valuations of traditional automakers like Ford and General Motors (GM) also warrant a closer look. Currently, Ford shares trade at around six times estimated 2024 earnings, while GM shares trade at four times. However, these valuations fail to account for the significant potential that EVs bring to the table.
GM, for instance, possesses an 80% stake in the autonomous driving company Cruise – a major player in the race for viable robotaxis, rivalling Tesla and Waymo. Surprisingly, GM’s stock doesn’t fully reflect the value of this lucrative venture, leaving room for additional upside.
Market Outlook
To provide a brief market update, both Ford and GM shares experienced slight declines in premarket trading on Thursday. S&P 500 and Dow Jones Industrial Average futures mirrored this trend with a downturn of approximately 0.2%.
In conclusion, the EV market is witnessing the rise of a new contender – Ampere. With its untapped potential and the advantage of an efficient IPO, Ampere is poised to disrupt the industry and unlock hidden value for investors.
- Contact Al Root
