* Change in capital structure still a possibility
Agreement with the French government appears to have been reached, but there is still a possibility it
will be revised as early as 2017. We reassess below the approaches that Renault-Nissan could possibly
take. We think likely outcomes include the status quo or a strengthening of the alliance with Daimler,
but we consider a number of possible scenarios. We also created an Interactive model for scenario
simulation.
* Improving the quality of the Renault-Nissan alliance is essential
Total sales/production volume for Renault and Nissan combined is at 9m vehicles, which ranks among
the world leaders, but most of those vehicles are small or midsize. With both companies earning an
operating margin at or below the median, their critical challenge is to improve quality, i.e., profit
margins. We also think greater cooperation with Daimler would bring significant benefits from the
perspective of complementing the alliance's ADAS and other leading-edge technologies and
strengthening its luxury car business.
* Notable expansion of cost-cutting in uncertainty-riddled FY16
Benefits from cost-cutting grew to €3.8bn in FY14, and the alliance is targeting even more cost
reductions, €4.3bn, in FY16. Cost reductions will be key to driving profit growth for both Renault and
Nissan in FY16, when global demand is expected to worsen.
* Investment stance: Renault BUY, Nissan BUY
Renault is well positioned to show best-in-class revenue growth in Europe thanks to the new launches
and "sales to partners". This should translate into higher margins and improving cash conversion. We
also like the EM optionality (Iran, India, China, Russia and Brazil). For Nissan, we hope for an expansion in
cost reduction towards achieving mid-term plans and SUV growth in China.