PARIS

French carmaker Renault is finding unexpected success with its hybrid vehicle lineup, thanks to an innovative and cost-effective gearbox technology. This strategy is providing the company with a competitive edge as the industry grapples with the transition to electric vehicles (EVs) and stringent emissions regulations.

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Renault CEO Luca de Meo's decision to invest in a low-cost hybrid transmission system, known as E-Tech, is paying dividends for the company. The technology is allowing Renault to gain significant ground in Europe's rapidly growing hybrid car market, offering a much-needed respite as competitors struggle with the complexities of the EV transition.

The European automotive landscape is currently facing significant challenges. Despite the European Union's impending ban on combustion engine cars set for 2035, demand for costly electric vehicles has not met expectations. This situation is putting immense pressure on Europe's car manufacturers, many of which have invested heavily in EV technology.

However, Renault, despite being smaller than many of its competitors and having faced record losses in 2020, is demonstrating remarkable strength in the hybrid vehicle segment. These vehicles, which combine both a conventional internal combustion engine and an electric motor, are proving to be a popular middle ground for consumers.

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According to preliminary figures from Renault, sales of its hybrid models, including the Clio and Captur, surged by 55% in the first eight months of 2023 compared to the previous year. This growth significantly outpaces the 21.1% increase observed across the entire European Union, as reported by the European Automobile Manufacturers Association (ACEA). The impressive sales performance has propelled the Renault brand to become Europe's second-largest player in the hybrid segment, trailing only behind Japan's Toyota.

Industry analysts at Stifel have taken note of Renault's strong performance, particularly after the company reaffirmed its business targets on October 8th. This move set Renault apart from many traditional automakers who have been forced to revise their estimates downward in the face of challenging market conditions. "Renault seems to be doing very, very well," the Stifel analysts commented, adding, "We think the company is simply more versatile and agile than its peers."

The key to Renault's recent success in the hybrid market lies in its focus on a technology that the company has mastered over decades. Leveraging its century-old expertise in gearbox manufacturing, Renault engineers developed a simplified 'dog clutch' system. This innovation, which connects and disconnects gears without the need for multiple synchronizers, forms the basis of the low-cost hybrid transmission system branded as E-Tech.

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The E-Tech system's primary advantage is its simplicity. Requiring fewer components than other dual-engine setups, it is both lighter and more cost-effective. This technology can be implemented across Renault's entire model range, providing a significant competitive advantage.

Investors have responded positively to Renault's strategy, with the company's shares rising 6.4% this year, in stark contrast to the 12% decline observed in the broader European auto share index. Philippe Houchois, an analyst at Jefferies, noted, "Renault is particularly at ease in balancing between battery electric vehicles and hybrid transmissions compared with its competitors."

The growth in Renault's hybrid sales is expected to continue as the company introduces more new models at competitive price points. For instance, Renault's hybrid Clio is priced only €400 higher than comparable models from Toyota and Peugeot, while offering more power and the versatile E-Tech gearbox system.

Antoine Giraud, an analyst at S&P Global, believes that "Renault is going to keep this advantage for several years." This edge in hybrid technology not only boosts sales but also helps Renault comply with EU regulations on CO2 emissions. The company's E-Tech hybrid cars emit as little as 95 grams of CO2 per kilometre, contributing to Renault's average CO2 emissions of 114 grams in the first half of 2023, outperforming competitors like Ford and Volkswagen.

However, Renault's success in the hybrid market is not a panacea for all its challenges. As EU emissions regulations tighten, with average CO2 emissions required to drop to 94 grams per kilometre from next year, Renault will need to increase its electric vehicle sales. Currently, EVs account for about 12% of Renault's brand sales in Europe, but this figure needs to rise to nearly 20% to meet future emissions targets.

Renault is not ignoring the EV market. The company plans to unveil a new electric SUV, the Renault 4, at the upcoming Paris auto show, following the recent launch of the Renault 5, another small EV. These launches will be crucial for Renault's long-term strategy, as noted by S&P Global's Giraud: "Selling more hybrids instead of thermal vehicles can only go in the right direction. But the key will also be the success of the launches of both the R5 and R4."