Renault faces $11B loss because of Nissan: What went wrong?
What's the story
Renault, the French automotive giant, has announced a massive non-cash loss of around $11 billion on its stake in Nissan for the first half of this year. The move comes as a result of the declining value of Renault's long-standing investment in Nissan, the Japanese automaker. Nissan is struggling with falling sales and an aging product lineup.
Stake details
Renault has been gradually reducing its stake in Nissan
The decision marks a loosening of the two-decade-old partnership between Renault and Nissan. Over the years, Renault has been gradually reducing its stake in Nissan and focusing on selective manufacturing collaborations instead of broad-based integration. Currently, Renault holds a 35.7% stake in Nissan, with 17.05% of it owned directly and the rest through a trust.
Accounting shift
Renault's net income will be unaffected by future fluctuations
Renault has said that going forward, any changes in the value of its Nissan holding will be recognized directly in equity, and assessed based on Nissan's share price. This means future fluctuations won't affect Renault's net income or dividends paid to shareholders. However, the news had an immediate market impact with shares of both companies witnessing a decline.
Market performance
Nissan is struggling financially
Nissan has been struggling financially in recent years, especially with its slow transition to electric vehicles. The firm has never fully recovered from the 2018 ousting and arrest of ex-chairman Carlos Ghosn. With declining sales and an outdated vehicle lineup, Nissan reported a net annual loss of $4.5 billion for the financial year ending March, and has refrained from issuing a forecast for the current year.