Ladies and gentlemen, welcome to the Renault Group third quarter revenue 2019 conference call. I now hand over to Mr. Thierry Huon. Sir, please go ahead.
Welcome to Renault third quarter 2019 conference call, broadcast live and available in replay versions on our website. The presentation file and press release for this call are all available on our finance sections on our website. I would like to point out the disclaimer on slide two of this pack regarding the information contained within this document, and in particular about forward-looking statements, and invite all participants to read this.
Today's call is scheduled to last about 45 minutes. As usual, we have two speakers this morning, Clotilde Delbos, Acting Chief Executive Officer and Chief Financial Officer, and Olivier Murguet, Acting Deputy Managing Director and Head of Sales and Regions. The presentation will last about 15 minutes and will be followed by the Q&A session. If we don't have the time to take everyone's question in these sessions, the IR team will be around to take your calls later. I will pass the call over to Clotilde for a few opening remarks.
Thank you, Thierry, and good morning, everybody. Before reviewing our Q3 commercial results with Olivier, I just wanted to come back one minute on the reasons for the guidance adjustment announced last week. While we had a rebound in our sales in September, our invoices for Q3 and what we have in visibility for Q4 are below our initial expectations. This is the result of a combination of several impacts. Some markets weaker than expected, delayed launches, and sales to partner more impacted than planned by decreasing demand for assembled vehicles, diesel engines, and CKDs. On the cost side, we still had growing R&D costs. I told you when presenting our H1 results that we needed to curb this spending. We achieved some results, but not as much as hoped, as it is challenging to reduce already launched developments.
Some costs related to Euro 6d and EU EVAP have been a bit higher than anticipated and not fully priced to customers. We are currently working intensively to reverse these trends, unfortunately, there is no quick fix and hence our guidance adjustment for 2019. We are convinced that going forward, our product renewal plan and the stricter pricing policies and our efforts on cost will pay off and put us back on the right trajectory. Basically, this is what I wanted to share with you this morning as preliminary remarks, it is time now to come back to our Q3 revenues. I will now pass over the call to Olivier, who will review our commercial performance in the third quarter.
Good morning. I will first comment on the global market evolution for Q3. The worldwide market decreased 3.2% with all regions showing a negative development except Europe. As you can see in the highlights by region, in Europe, Germany and Italy show strong increase compared to last year, but Spain fell strongly by almost 10%, as we have seen the retail channel in the last months. Regarding the Americas, Brazil is at + 5% and Argentina continues on a negative trend at - 30%. In Eurasia, Russia decreased by 1.2% and the Turkish market fell almost 22%. In India, the market has strongly and suddenly decreased to - 27%. In this context, Group Renault sales were down 4.4%. The global market share stayed around 4% with 852,000 vehicles sold.
It is worth noting that the closure of the Iranian market, following the U.S. sanction from August 2018, had an impact of -2.6 points. In Europe, our sales declined -3.4% in a market up 2.4%. We have sold 15,000 units less than last year when we have had a punctual seasonality momentum linked to WLTP disruptions. In regions outside Europe, Groupe Renault overperformed the market with volume down 5.4% in a market that declined 6.2%. The group suffered from the decline in Turkish market, Argentina, and of course, from the stoppage of sales in Iran, close to 24,000 units sold in Q3 2018. In Russia, our second largest country in terms of sales, the group overperformed the market, gaining two points of market share thanks to the launch of Arkana and the continuing success of Lada products.
In India, we increased our market share by 0.5 point, thanks to the launch of Triber, our new compact vehicle with unrivaled flexibility for transporting up to seven people in a sub four-meter vehicle. In a market that fell 27%, we reduced our volume by almost 8%. In Brazil, the group overperformed the market recovery with sales up 5.6% thanks to the success of Kwid and Kwid Outsider. In our China region, our sales decreased 15.5% in a market down 5%. We launched our new affordable urban electric car named City K-ZE, as well as new Captur in the fourth quarter. Let's go to models. Clio remains number one of its segment and second overall in Europe's sales. The Clio 5, after being launched in France, Belgium, and Luxembourg, came to the market at the end of September all over Europe.
In France, Clio 4 Plus, Clio 5 performed better in Q3 than Clio 4 last year. It is important to notice that for Clio 5, we have started a strong policy of net pricing improvement. On the EV side, Zoe sales in Europe were up plus 46%. On LCV, increasing in Europe by 10% in Q3 and cumulative September improved LCV market share by 0.6 point. In Russia, regarding Lada Granta, it stays number one in the market, and Kwid in Brazil improved by 44% this volume. Regarding cumulative sales until September, the group's market share remains stable at 4.3%, with volume reduced by 6% on a market that fell by 6.1%. In Europe, our sales were down 1% with the market, notwithstanding our net price increase. In 2019, the global automotive market is expected to decline by around 4% compared to last year, versus 3% as previously anticipated.
The European market is expected to be between 0 and -1% versus stable previously. The Russian market should be down by around -3% versus -2% previously. The Brazilian market should grow by around 7% versus around 8% previously. This finishes my review. I now give the floor to Clotilde.
Thank you, Olivier. I will start this part of the presentation with the change in third quarter revenues compared to last year on slide 11. As you can see, group revenues decreased 1.6% to EUR 11.3 billion in the quarter. At constant exchange rates, the decrease would have been 1.4%. The contribution from the automotive division, excluding AvtoVAZ, decreased by 3.9% to EUR 9.7 billion. Excluding the ForEx impact, auto revenues would have been down 3.2%. AvtoVAZ contribution was up 26.2% at EUR 0.8 billion in the quarter, reflecting the success of Lada products and an improved pricing.
Please note that the lower elimination and a positive ForEx impact also helped. Excluding this ForEx impact, it would have been up 16.7%. The contribution from sales financing was up 5.4% at EUR 0.8 billion. I will begin the analysis with the review of the automotive division. The first item, volume, accounted for -0.8 points.
The decrease shown in the registration was -4.4%. The gap came from the fact that CKDs, notably in Iran, registration in China, Lada, Jinbei, Huasong cars, are not captured in this bucket. The change in inventory had a positive effect of about 0.6 points in this item. Finally, as you know, let's not forget that our new car business is not 100% of the automotive revenues. Geographic mix is almost neutral. The product mix effect was slightly negative in Q3 at -0.3 points. This stems notably from the success of Kwid in America and lower sales of Scénic in Europe. In addition, sales of Master have been affected by a fire in the plant during the summer. The price effect was positive by 2.1 points, showing an acceleration compared to the 1 point recording in H1.
This came from usual price increases implemented in Argentina to compensate the devaluation, but also from our determined pricing policy, notably in Europe, starting with our new Clio. The sales to partner item was negative 5.5 points in the quarter. This is the big negative impact of the quarter. It reflects the fall in our partner's demand for assembled vehicles, a continuing lower demand for diesel engines, and the stoppage of our business in Iran. The next item is foreign exchange. It showed a negative impact of 0.7 points. With no surprise, the strongest negative contributor is, again, the Argentinian peso. The Russian ruble, the Brazilian real, and the Turkish lira impacted positively the turnover this quarter. The last item, others, impacted positively for 1.2 points. This is mainly explained by the impact of the retreatment of buybacks in our own dealer business.
Globally, our stock went down in the quarter to 603,000 cars at the end of September, when we were at 630,000 cars at the end of June 2019 and at 588,000 a year ago. I remind you that we ended last year's Q3 with a low level of inventories due to WLTP introduction. Consequently, in number of days of backward sales, we have an increase over 2018 from 69 days to 75 days. This is a normal level for Q3, and it is in line with where we stood in 2017, adjusted for Iran. As usual for a third quarter, we have a de-stocking at independent dealers. Their stocks stood at 313,000 units versus 412,000 units at the end of June, which is in line with our usual level of stock at the end of Q3.
We expect to finish the year with a normal level of stock with less than 70 days of backward sales. Let's look at RCI. In terms of activity during the quarter, the number of new contracts underwritten by RCI Bank decreased by 0.8% versus the same period in 2018, reflecting the collapse of car demand in Argentina and in Turkey. New financing stays almost stable at EUR 5 billion or 0.2% decrease. Before moving to the Q&A session, I will turn to the last slide, which give you our outlook for 2019. In terms of market development, Olivier has already shared with you our revised expectation. I will not come back on our financial guidance that we have revised last week. This concludes our presentation. Olivier and I will now take your question. I will hand over the call to the conference operator. Thank you for your attention.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. Please lift your handset before you ask your question. Thank you for holding until we have the first question. First question from Thomas Besson from Kepler Cheuvreux. Sir, please go ahead.
Thank you very much. It's Thomas from Kepler Cheuvreux. I have two questions, please. One, on Clio and the new pricing policy. Can you detail, please, what happened on the Clio launch? You've mentioned that some versions have been challenging to deliver. Can you explain a bit more in details what you mean by stronger pricing policy? That would be my first question. The second, well, I'll ask you later.
On Clio 5, I'm not sure I got the second question, but on the Clio 5. You saw that we launched before summer, mostly France, Benelux and Luxembourg, but not the other countries. That's the first point, in terms of countries. We only launched in a few countries, whereas we had planned at the beginning of the year, or even last year, to launch most of the country before the summer. Same on the version. We don't have the higher version yet. We didn't have, before summer, the higher version yet, and we only had the middle range version. That's what I meant in terms of delay in launches. We had planned for more to be before summer, whereas most of it is coming now at the end of September. That's what I meant in terms of delayed launches.
It's just a few months, but in view of the impact of Clio, it's important for us. I will turn over to Olivier on the pricing policy for Clio and more globally for the rest of the world. If it is not completely answering your question, please tell us at the end.
Yes. On pricing policy, it's true that for a couple of months, we are implementing a strict discipline of price definition within the group. Clio is a very good example. Today, new Clio is priced at the same level as its main competitors, which was not the case before. This is also valid for all the new launches that are being done in the group. As a result, for example, in Europe, the net pricing on Q3 was 2.8%. We see concretely on a concrete manner, the first result of this policy.
Okay. Great. Very clear. You didn't miss my question yet, because I didn't ask it yet for the second. I give it a try. On your dividend, historically, the policy has been to at least redistribute the dividend received in the year N plus one, and eventually add a top-up. Should we consider that this will still be applied despite the possibility of cash burn in 2019, or could you eventually change that definition in 2020 for 2019?
Thomas, as I said last week, obviously in view of the current context, it's really too early to confirm that we will keep the same policy. We will review exactly where we stand in terms of results and cash generation at the end of the year. We'll convene with the board in order to decide what is the appropriate dividend policy for the future.
Thank you, Clotilde.
Thank you. Next question from Jose Asumendi from JP Morgan. Please go ahead.
Morning, Clotilde. Two questions, please. Jose, JP Morgan. First one, with the most recent changes we are seeing across the company, can you just give us a brief overview of who is doing what at Renault in terms of production, sales, who is running the Renault-Nissan Alliance, and are you planning to do any additional changes going forward? I think second question would be, as we think about the margin contraction in the auto business, maybe for the last sort of year and a half or two years, what are the biggest buckets you can tackle in terms of pricing, worker layoffs, or improving the capacity utilization, and when should we expect this new plan to be announced? Thank you.
Okay. Well, clearly, who's doing what in the company? That's an easy one, actually. We have an Executive Committee, which hasn't changed, with very clear defined responsibility, working pretty well collectively. This hasn't changed. We have not announced any change at the level of the Executive Committee. I have asked Olivier Murguet and José Vicente de los Mozos, our two deputy, to help me on some areas of the company which are quite natural in view of their background and of their experience. For example, Olivier is going to be not only involved in sales and region, but he's also going to be more involved in marketing than what he was before. That's an example. On the José Vicente side, same thing.
He's, as you know, a very seasoned manufacturing guy, but he's also going to help a lot on engineering, purchasing, in order to coordinate the activities of the region. There is no change in the organization. The executive stays the same, with all people reporting to me. This is extremely clear. We keep on doing the business, focusing on the business, and at the same time, and I'll come back to that, working on reviving a new plan for the company. For the Alliance, clearly, everybody is working on the Alliance because we have so many interaction with the Alliance. Olivier, José Vicente, and myself are closely working with Jean-Dominique Senard in order to help the, how can I say, the "nouveau souffle" as Jean-Dominique said, the rebirth, new breath of the Alliance.
We are all going to Japan pretty soon in order to meet the new governance of Nissan, which is going to be in place pretty soon, in order to make sure that we are all aligned and define ways of enhancing the work which is being done and should be done at the alliance level. As I mentioned several times, no current project have stopped. We're working with the alliance on this project, the new platform. You just saw the new Juke, which is coming on live, is really on the same platform as new Clio, who just come live. New Captur, which is going to come live at the end of the year, beginning of next year. What we want is really to fuel the pipe, as I said last time, with new ideas in order to enhance the synergies between the two companies.
That's the who's doing what at the level of the company and for the Alliance. Clearly, we're involving a lot, all the managers and the executive committee of Renault to help us find new areas of synergies at the region level, at the function level, which can help the two companies. In terms of the new plan, obviously, we're not going to completely change everything. What we want to do is really focus on what matters for the future of the company. We have started this pricing policy, and it's delivering, as you can see already, with the Q3 revenue numbers. We need to continue because we are improving on price, but you know that we also have extra cost. I already mentioned that in the pipe. Now we have all the launches of the new models coming. We started with Clio.
We have new Zoe coming. We have new Captur, et cetera. We're just at the beginning of the whole new launches. Hence, I think we have a lot of potential for this pricing policy. On the rest, obviously, we're adapting to the circumstances in terms of cost, as I already mentioned. We have started a full review of the Drive the Future plan, but it's really, sorry, José, but it's a little too early to mention the routes we're working on. We need to refine. We have quite a few ideas already, which have been put on the paper that we need to be working on before we can announce everything, and we will announce everything when it is ready, I guess, in a few months.
Thank you very much. Thank you.
Thank you. Next question from Kai Mueller from Bank of America Merrill Lynch. Please go ahead.
Thank you very much for taking the call today. Just a follow-up on what you said, obviously, earlier on your sales to partners. Partially, it is obviously Iran that will lapse at some point, but the other portion is your diesel engine sales and assembled vehicles. Can you give us a bit of color in terms of, I know this was part of your downgrade for the volumes this year, how you expect this to pan out into the fourth quarter? Maybe also give us a bit of color how that pans out into the coming years.
I know you mentioned the alliance is working well and nothing has been stopped, but are there also changes in terms of demand patterns within your alliance from Nissan in terms of engine purchases from you? Is it just to do with the diesel technology being less in favor right now in the market?
You're right to point that out because as you have seen, the impact of sales to partner on the third quarter is major. Let me give you a little color. On the sales to partner, I would say that around 40% of that impact is coming from new vehicle, 20% from CKD, including Iran, but not only, and 20% on powertrain. Powertrain is really linked to the decline in diesel demand. It has nothing to do with the fact that we are the provider. We are the provider of these diesel engines to our partners. It's just a decline in diesel, which you can really see on the market datas. Nissan, less demand, but not only Nissan, Daimler, less demand in diesel engines is not because they're going to shop somewhere else, it is because the diesel demand is down. That's the first point.
Second point is on new vehicle, assembled vehicle, which is a big portion, as you can see, of the decline. This is linked to actually all our partners for several reasons. Obviously, you have Nissan demand of cars, which are mostly Micra and Rogue. Rogue is at the end of its life, and Micra is not performing that well, to be honest, on the European market. That's the reason. You have all the cars that we sell to Daimler, same thing. We are not providing the Smart Forfour anymore because it's going to be done in China in the future. It has been announced. Sorry, the two. We have a decline in the demand from Daimler. We also have a decline in the demand of LCV from our other partners that we have, as we have several partners on LCV.
It's a decline which is linked either to the market or to cars coming to the end of their lives. On the perspective for the last quarter, unfortunately, I don't think it's going to improve at all versus the numbers that you have here. It should be around the same level of magnitude. For 2020, same thing. It's not yet rebounding. We're in discussion with many other partners in order to find new ideas in order to refuel the pipe. As I said a week ago, these take time, and we should not see a rebound in sales to partner in the very near future. Especially also because in 2020, you will still have the decline in diesel, even though we think it is slowing down. This decline is stabilizing, I must say, and then you won't have Iran at all. That's it.
No effect of Iran in 2020.
Okay. Which is what I follow up. Basically, the underlying is actually getting worse because ForEx is more you have to close it. If you expect the slowdown to continue in that stage, Q4 should have no more ForEx effect included.
You're right. Q4 will have no Iran effect included, but nevertheless, the impact should be roughly the same.
The same. Okay, perfect. That's very helpful.
Thank you. Next question from Raghav Gupta-Chaudhary from Citi. Please go ahead.
Morning. I'd like to better understand the support from pricing. Historically, it's been rare for pricing to exceed the FX impact. Clearly, you've kind of changed the policy, it sounds like. What gives you the confidence that this trend is going to continue, and why the sudden change in policy versus, I guess, the past few years? That's the first one. The second one, I'll give it to you now as well. I was going to ask if you sat down with your new counterparts at Nissan, I think you've already answered that. There was some press in recent days that they may sell some of the European plants. As part of the alliance, is this something that they would generally consult with you? Thank you.
Yes. I'm not sure I understood the question. Just to be sure, your question is about the ForEx effect compensation, correct?
Well, it was about pricing more generally, whereas historically, pricing and FX has generally kind of been neutral, the impact of both. You've been offsetting the negative FX.
Okay.
It sounds like you've had a change of policy.
Yes.
I was really just keen to understand your confidence level.
Okay.
That this trend where pricing exceeds FX will continue.
Yeah. Okay, understood. There are two situations. The first one in Europe, which basically has no ForEx effect. In Europe, as we said previously, yes, our net pricing is increasing quarter by quarter, and more again in Q3, thanks to the launch of new Clio. The launch of new Captur, as I said, with a very precise and strict pricing policy, market by market, monitored by us. Out of Europe, we have on top of this pricing policy, which applies also in our main markets out of Europe, we have an additional ForEx effect that we compensate more than compensate. For example, in Asia, in America, two main regions out of Europe, the net pricing effect is also positive on Q3, offsetting ForEx.
Sorry, just the trend going forward, if I can ask about the trend going forward, how you expect that to evolve?
Yes. Because it's a long-running policy. We expect to maintain this improving trend.
Yeah, I can tell you that in our forecast, we keep on working pretty actively on the pricing effect, huh. Yes, you can expect that to continue. On your second question, first, I don't think Nissan has confirmed any of the information that you're relating to. That's the first point. The second point is you need to know that we have a common team within the alliance, which is taking care of industrial strategy. Obviously, as it is a common team between the alliance, everything which does concern industrial strategy is shared between Renault and Nissan.
Okay, thank you. Thank you both.
Thank you. Next question from Stephen Reitman from Société Générale. Please go ahead.
Yes, good morning. I have two questions. First of all, looking at the After Sales revenue growth, which is quite impressive, it would suggest that the company itself is performing quite strongly. I would guess that would flow through to the EBIT level. It does suggest that the guidance that you've been giving for the second half implicit in the 5% group margin is much more relating to Europe. Would that be a fair assumption? My second question is also on the relationship with Daimler.
Daimler is obviously holding a major capital markets event in mid-November, where they're going to be putting their strategy forward. I think one of the expectations is they're going to be talking more about scale and about getting better economies of scale. Obviously, Renault has been a key partner for Daimler in the past on the diesels and on supplying vehicles. Could you comment on what the relationship is looking like now? Thank you.
On AvtoVAZ, you're right. First, AvtoVAZ is doing extremely well. There is a continuous success of their product. Same thing, they apply the same strategy on pricing. First, to compensate any potential FX impact on the parts that they get, but also because their product is extremely successful. They have increased the pricing effect on VAZ is about two points also. Very good success of AvtoVAZ. That being said, you need to know that on the turnover, once translated in EUR, as I mentioned before, there is first a big impact of FX and second, an impact of the elimination between Renault and Nissan. Nevertheless, VAZ is really on the good path. On Daimler, our relationship with Daimler have always been very good, and there is no reason for that to change. We are good discussion on several things.
I think you saw, it was a few weeks ago, that Daimler confirmed that they will renew their small van, Citan, with us, working on the next generation of small vans. The relation are pretty good, and we're looking at other opportunities to work on and not necessarily only on the vehicle side, it can also be on the mobility side, on many other services side. I think there has been some communication in the past on that. These discussions are ongoing.
Thank you.
Thank you. Next question from Philippe Houchois, Jefferies. Please go ahead.
Yes, good morning. Thank you. I guess I'm looking possibly for a silver lining in this discussion about this third party decline. Historically, at least my perception, has been that there's a disproportionate contribution of third-party business to the earnings of Renault. Clearly, some of that business isn't coming back next year, but it means also we don't have the headwind next year. I'm just trying to understand to what extent, what is the contribution of this business to your profit warning, and that we should think about how next year will actually not have this incremental negative.
If you can squeeze in a second question is, I think there's been discussion, or it seems like Nissan is about to kill the Datsun brand. A big part of the Datsun production, I think, is done by AvtoVAZ in Russia. Is that material or we just ignore that?
Okay. On the sales to partner. First, the contribution of the sales to partner is extremely different depending on the type of business we have with our partners. Let me take just a minute to drive you through that, because I think it's important. On the assembly car, if it is an assembly car that we do in one of our plants for the benefit of a car which is designed and completely the proprietary of our partner, we only have a small margin on the value-add cost. Basically, the manufacturing cost in our plant. This was the case for Micra, et cetera. That is something where the contribution is not that strong.
If it is one of our car, we own the IP, and we sell to one of our partners in manufacturing in one of our plant, just like we do on LCV, for example, then you have a good margin because you have the margin which is linked to the IP of your car. You can see that just on that topic, the contribution margin is extremely different from one very small cost-plus benefit on the one hand, and a real margin on the other hand. On powertrain, we used to have very good margin because we used to own the IP, clearly. On CKDs, it depends, but usually also the margin was comfortable. That's why you cannot take an average of contribution margin for all the sales to partner business.
Now the second part of your question on that sales to partner is, did that contribute to the profit warning? The answer is yes. I mentioned that last week. Clearly, the decline we see on sales to partner, especially on newer vehicle, is higher than what we had expected, at the beginning of the year or even at the end of July. The third part of your question, if I'm correct, was relating to Datsun. Datsun in VAZ is not significant. The volume is low. If it was to stop the volume, it's okay, we'll have an impact on VAZ, but clearly, it's not significant.
Okay. Thank you very much.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero and one on your telephone keypad. We have a new question from George Galliers from Goldman Sachs. Please go ahead.
Good morning, and thank you for taking my question. Just returning to the sales to partners. Clearly, Renault has the E-Tech technology, which you will use next year in Clio and Captur. Is that a technology which you've had any interest in from third parties and could potentially supplement sales to partners in the future? Is my first question.
Okay. First, it's a technology which is available for the Alliance. If Nissan deems it's appropriate, obviously, we will share with Nissan. At this stage, it's not completely the case, because the needs of Nissan, especially in Japan and other countries, is better appropriate for e-POWER than for E-Tech. There might be also opportunities for Nissan to look into that. Obviously, we are available to share with other partners any of the technology that we have. This is part of the plan to reduce our R&D spend that I mentioned before in the past. We have a lot of potential partners knocking at the doors, willing to share either our strength in LCV, our strength in EV, or our new technology in terms of hybrid. Currently, there is nothing signed that we can announce, but obviously, this is open.
Thank you. You've also mentioned the incremental costs associated with fuel-saving technologies and CO2. Clearly, the E-Tech offering seems to offer significant improvements in fuel consumption and attractive electricity driving in cities. Can you give us some idea of what the cost of this system is, in terms of bill of material impact versus a 48-volt system or a plug-in hybrid system that your peers are using in terms of more conventional technologies?
Well, I think it is a little too confidential at this stage. I guess everybody is implementing that. It would be a competitive advantage for us and removing a competitive advantage for us to provide you with this type of information. I'm sorry, I can't give you that information.
Okay. Thank you. Just one final question. Has the board set any timing around when they would like to confirm the CEO position? Clearly, there are a lot of moving pieces at Renault at this point in time, and you've said your midterm targets are under review. Is there a deadline by which the board would like to have the CEO position resolved?
Well, clearly, I think what the board has said is that they want to make the appropriate work in order to look at the potential candidates, there is an intention to do it as soon as possible in order to stabilize that company, for sure. There is no specific deadline, to my knowledge, that has been set.
Great. Thank you very much.
Thank you. Next question from Tom Narayan from RBC Capital Markets. Please go ahead.
Yeah. Hi, Tom Narayan, RBC. Thanks for taking the question. I got to ask this. I wasn't able to ask this last week. How much of the operating income guidance cut for 2019 was from R&D versus non-R&D? I've gotten a lot of questions on this all week. How much of this R&D cut was CAFE-related and non-CAFE-related?
Well, it's a big mix of everything. As I told you before, the several reasons we have for the guidance was market-related, sales to partner, and cost. In the cost, a big portion of that is linked to the cost we have to embed in the car for a new regulation, plus R&D that we haven't cut as much as we can. It's a mixed bag of many things. No specific allocation.
Yeah.
Yeah.
Yeah. I guess what people are just trying to understand is order of magnitude. Is this R&D impact more than half of the operating cost increase or the EBIT cut? People are just trying to understand the order of magnitude of that, I guess. Like, how big is that impact, I guess?
Well, actually, what I could say is you have slightly more than 50% on volume/sales to partner, and the rest being cost.
Okay.
In the cost, a portion of that is linked to regulation, i.e., the cost in the car and the R&D.
Okay. That's helpful. My second question, when will we know the specifics on your guys' EV plan? Some of your peers in Europe have broken out the rollout of plug-in hybrid versus BEV, those sorts of things. Are you guys planning on doing an EV day or a deeper dive disclosure on what your specific EV plan is for compliance for 2020 and 2021?
Actually, having some type of a field trip or something on EV is in our plan to give you a little more detail on where we stand on EV, what is our plan. We are a little more cautious than others on announcing in advance our new car and EV, because contrary to others, we are already selling Zoe, which is selling pretty well, and we don't want to take risks about that. Basically, we believe that we should be able to reach next year, approximately 10% of our sales between BEV and PHEV, not taking into account HEV. EV should be above 100,000 sales next year.
Okay, perfect. Thank you.
Thank you. Next question, once again from Mr. Philippe Houchois from Jefferies. Please go ahead.
Yeah. Thank you for taking me back. I was just curious, you said in your response that Samsung is not that material for us, that's fine. I'm just wondering, at some point, are you at a stage at Renault where you are looking at activities that are non-material to the group? If it's not serious enough at this stage to consider whether Renault should continue doing Formula 1, if Samsung makes sense or if Alpine makes sense. I'm just trying to gauge if those issues are on the table, or do you think it's just not severe enough to actually consider those topics?
I'm not specifically targeting those two activities that you mentioned, but clearly the review of the Drive the Future plan means that we put on the table. It's like a normal process. It's just not a minor review. We're really launching a deep review of our Drive the Future plan in order to take into account the new context of the market, the change in usage, mobility, et cetera, and the current situation of the group. Everything can be on the table at some point. This is a deep review of our strategy and of our plan.
Thank you.
We don't have any more questions.
Okay, as there are no more questions, it's going to be the end of this call. Thank you for being on the call this morning, if you have further questions, feel free to call us. We'll be happy to take your questions during the day. Have a good day. Bye.
Ladies and gentlemen, this concludes this conference call. Thank you all for your participation. You may now disconnect.