Nissan and Renault Address One Issue, But Leave Others Unresolved

Nissan's unhappy marriage may be coming to an end. The Japanese automaker has been in a difficult relationship with its French partner Renault for years, and the two have been exploring a possible divorce.

Now, it appears that Nissan is ready to move on. The company has announced a major restructuring plan that will see it focus on its core businesses and reduce its dependence on Renault.

This could be the beginning of a new era for Nissan. The company has been through a lot of turmoil in recent years, and this restructuring plan could be just what it needs to get back on track.

Renault's stock price fell by 4.12% today. This follows a trend of decline for the company, which has been struggling in recent months. Renault is hoping to turn things around with a new strategic plan, but it remains to be seen whether this will be enough to boost the company's fortunes.

While hope is often seen as a positive emotion, it can also bring with it a certain amount of complications.

On Monday, the two auto makers announced a change to the cross-shareholdings that underpin their beleaguered global alliance. Renault will transfer most of its stake in its Japanese peer to a trust for eventual sale, where it won’t carry voting rights. The companies will then have 15% effective stakes and 15% voting rights in each other, which should help cooperation since unifying former boss Carlos Ghosn was arrested in 2018.

The long-awaited development has the potential to improve relations between the partners and pave the way for better operational, financial and stock-market performance. However, it isn't entirely unexpected: Talks were widely reported last October. The companies even booked a London hotel to announce the deal in early December, only to cancel it. The months-long delay, and the questions left unanswered in Monday's announcement, highlight the many challenges still to be addressed.

Renault didn't want to reduce its shareholding in Nissan simply to improve relations between the two companies. It wanted Nissan to invest in its electric vehicle subsidiary, Ampère, in exchange. According to Monday's statement, Nissan will indeed invest in Ampère, but no amount was given, suggesting it could turn out to be tokenistic. Nissan has little to gain from being a junior partner in a mainly European EV business; it needs a global EV strategy.

Monday's talks between Renault and Nissan did not address the issue of shared intellectual property, which has been a sticking point in the alliance. Nissan has been reluctant to give up any control outside the alliance, which could hamper Ampère, Renault's electric vehicle spin-off, which is scheduled for an initial public offering this year. This could also be a problem for another Renault project, code-named Horse, which involves shifting combustion-engine assets into a joint venture with China's Geely.

Nissan and Renault have said that they have agreed on "reloading the partnership with high-value-creation operational projects" in Latin America, India and Europe. These sound like efforts to show that the alliance can still generate valuable synergies, rather than simply holding up decision-making and distracting management at a challenging time for the whole industry. While welcome, they should be business as usual.

For investors, the biggest question is what will happen to the 28.4% stake in Nissan that Renault will place into a trust. The partners said it would be sold “if commercially reasonable for Renault Group in a coordinated and orderly process,” with no deadline. This stake is currently worth about $3.9 billion, so it is a significant asset. It is unclear what will happen to it, but it is possible that it will be sold in the future.

This means that the overhang on Nissan's stock, which has made it one of the worst-performing auto stocks globally in recent months, is unlikely to go away anytime soon. The Japanese company could buy the shares back and cancel them, but that would be expensive and the companies would need to agree on timing: A good time for Renault to sell would be a less favorable time for Nissan to buy. Reducing the number of Nissan shares in issue would also mechanically increase Renault’s 15% active stake, reopening the old wound.

Since the beginning of October, Renault's shares have soared as investors have anticipated a more efficient use of capital once the company sells its Nissan stake and Mr. de Meo restructures the business. Nissan's shares, on the other hand, have struggled. It is certainly good news that the companies are patching up their relationship, but investors need to brace for bumps on the road. The price of peace now may be arguments ahead.