Moody’s downgrades Renault

Moody’s Investors Service said it downgraded Renault SA’s long-term ratings to Ba1 The outlook remains stable.

“The downgrade to Ba1 was triggered by Renault’s substantially weakened operating performance reported for the year 2019 to a level no longer commensurate with the Baa3 rating category. Based on the company’s 2020 guidance anticipating a further decline in the group’s operating margin and the continuing weakness of the market environment, we do not expect that Renault will be able to restore healthy operating margin levels in the medium term,” said Moody’s in a press release.

The agency anticipates Renault’s automotive operating income margin will decline further to below 1% in 2020 and remain under pressure for an extended period. In addition, the cost to comply with carbon dioxide regulation in the European Union and the ongoing electrification of Renault’s fleet will have further dilutive effects on profitability.

Moody’s said it expects the material required capital expenditures to weather these challenges will continue to absorb large amounts of cash leading to a substantially negative free cash flow (Moody’s definition) of around €2 billion in 2020.

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