Renault Plans IPO for EV Business Ampere

Renault (ticker: RNO.France) is set to sell stock in its electric vehicle (EV) business called Ampere. The initial public offering (IPO) is scheduled for the first half of 2024, drawing attention from Ford Motor (F) and General Motors (GM) investors.

During an investor event held on Wednesday, Renault outlined its primary objectives, including a 40% reduction in the cost of manufacturing EVs. This reduction will primarily be achieved through advancements in battery technology and the electric powertrain. These cost-cutting measures will help Renault achieve two additional goals—an operating profit margin that breaks even by 2025 and a double-digit operating profit margin by 2031.

In a report, Bernstein analyst Daniel Roeska acknowledged the impressive nature of the event but questioned the necessity of an IPO. Roeska raised concerns about Renault's decision to solely fund Ampere through equity, without taking on any debt, and the need for an IPO when Renault possesses sufficient cash flow to support the EV business.

However, the source of the funds may be inconsequential. Renault's stock currently trades at a troubling valuation multiple, with shares priced at 2.7 times the estimated 2024 earnings. This valuation signifies investors' apprehension regarding future growth and profitability.

As Renault prepares for its IPO, investors and industry watchers are eager to see how it will navigate the ever-competitive EV market. EV Stocks: Unlocking Hidden Value and Potential

Electric vehicle (EV) stocks have been gaining significant attention in the market lately. While it's widely known that Tesla (TSLA) is a popular and profitable player, there are other companies worth exploring. One such contender is the Chinese EV leader, BYD (BYDDY), which trades at a reasonable 17 times the estimated 2024 earnings.

Enter Ampere, an emerging EV manufacturer expected to turn profitable later in the decade. To get a sense of its worth, let's look at Polestar Automotive (PSNY), a company rooted in Volvo and owned by Geely. Even with its debt, Polestar commands a valuation of approximately $6 billion.

When compared to established players like Renault and its annual sales of around 250,000 battery-electric vehicles, and Polestar's sales of about 60,000 units, Ampere shows great potential. In fact, on a per-car basis, Ampere could be valued at a staggering $25 billion—more than double Renault's entire market capitalization of $11 billion.

Given the immense value hidden within Ampere, an initial public offering (IPO) seems like the best way to unlock its potential. This strategy would be far more efficient than selling additional Renault stock, which would cause a substantial dilution of shares by 50%. With Ampere, it may only require selling a mere 20% to outside investors to raise $5 billion.

Looking beyond individual electric car manufacturers, it becomes apparent that traditional automobile giants like Ford and GM are undervalued in terms of their EV potential. With Ford and GM shares trading at just six and four times the estimated 2024 earnings respectively, these valuations fail to capture the true value of their foray into electric vehicles. It's worth noting that GM also owns about 80% of Cruise, an autonomous driving company competing with the likes of Waymo and Tesla to bring robotaxis to the masses. However, this value is not accurately reflected in GM's stock price.

On Thursday, both Ford and GM shares experienced a slight decline in premarket trading. Similarly, the S&P 500 and Dow Jones Industrial Average futures were down around 0.2%.

As the EV landscape continues to evolve, investors should carefully consider the hidden value and potential waiting to be unleashed by Ampere and other promising innovators in the industry.