Good morning, and welcome to Renault Q1 2022 conference call, broadcast live and in replay versions on our website. This presentation will be made by Thierry Piéton, Group CFO, and will be followed by a Q&A session with Denis Le Vot, CEO of Dacia, Fabrice Cambolive, SVP Renault Brand Sales and Operations, Xavier Martinet, VP Dacia Sales Operations and Marketing, Laurent David, SVP Group Controller. Thierry, the floor is yours.
Thank you, Philippine, and good morning, everyone. Q1 was another tough quarter for the automotive industry, mainly due to the semiconductor crisis. On top of this already challenging environment, we sadly have to face the impact of the conflict in Ukraine. In this context, the group registered 552,000 units in the quarter, a 17.1% decrease over the first quarter of 2021, or 13.9% excluding the impact of Russia, mainly due to the chip shortage, particularly on the Renault brand side. Renault brand sold 349,000 vehicles, down 19.7%, while Dacia, less exposed to the most affected suppliers, recorded a 5.8% growth with 128,000 units.
Alpine's activity, supported by the launch of the new range around its iconic A110 and the expansion of its network, rose 67%. Strongly hit by the repercussions of the conflict in Ukraine, Lada sales fell by 33.1% to 61,000 units. All in all, sales from Renault Russia and AvtoVAZ together amounted to 83,000 units in the first quarter of 2022, down 31%. However, you will see in this presentation that the group's commercial policy focused on value. Our pricing and distribution channel discipline and product offensive have enabled the group to absorb most of the impact of these lower volumes. Just have a look on this slide at Renault brand C-segment launches.
Arkana continued to be a success with more than 9,000 orders per month in the first quarter, 60% of them in retail, 60% on E-Tech, and 78% on the higher trims. Mégane E-Tech Electric started very well with more than 10,000 orders in only two months, even though the orders are not yet open in all countries and the cars have yet to hit the dealerships. Here again, the highest equipment and engine versions are favored by more than 70% of our clients. You know that the reconquest of the C-segment is a key element for Renaulution. Arkana has paved the way for our product offensive, and I just mentioned Mégane E-Tech, but there was a missing piece, a powerful SUV. Our C-SUV, Austral, expected in the third quarter of 2022, is already getting some solid feedback by journalists.
Austral will carry the latest generation of more powerful and efficient E-Tech hybrid, thus has optimum level of fuel efficiency and CO2 emissions, making it one of the most cost-efficient hybrid SUVs. On the LCV side, New Kangoo was awarded Van of the Year for 2022. If we look at the Dacia brand, Dacia Spring is the most affordable European EV for only EUR 19,000 before bonus, and continues its momentum with about 5,000 sales per month in the average of the last two quarters. It was No. 2 electric vehicle in France in the first quarter. Jogger, the roomy and affordable family Dacia, is off to a great start with more than 36,000 orders registered in four months, two-thirds being LPG and 70% high trim versions.
Even if it's not a launch of the year, I'd like to highlight the success of Sandero, which remains number one in the retail market in Europe since 2017, and Duster, which has reached two million sales since its launch. Finally, our order book, which was already at a record level at the end of 2021, continues to increase with the combined effect of a stronger order intake and the supply chain disruptions. It reached 3.9 months of sales at the end of March. Our orders in the first quarter of 2022 for passenger cars and LCVs in Europe experienced a double-digit increase in Q1 versus 2021. You know the Renault brand's ambition to be 100% electric in 2030 in Europe for passenger cars, with an intermediate milestone of 65% of electrified sales by 2025.
We're perfectly on track to reach this objective, thanks to the commercial success of our E-Tech lineup, which is accelerating in 2022. In the first quarter, 36% of our clients went for an electrified version, hybrid or battery EV, which is up 13 points versus the first quarter of 2021. Let's continue with the improvement of our product mix. One of our key goals, as I mentioned, is to reconquer the C-segment. In the first quarter, worldwide C-segment passenger car sales represented 30% of our sales, up three points versus the first quarter of 2021, and our upcoming lineup will help continue the increase. We also continue to improve our channel mix. In the first quarter, retail accounted for 57% of Renault brand's total sales, up 16 points versus the first quarter of 2021.
Dacia is still very well represented in the retail segment with more than 85%. All in all, the retail channel represented 69% of Renault Group sales in the first quarter of 2022, up 15 points versus the first quarter of 2021. As I already mentioned, for our new models, high-end versions make up for more than 70% of the mix. As a result, our net pricing improved by 5.6 points versus the first quarter of 2021. Now let's see the contribution of our different segments to Q1 revenues compared to last year on slide nine. As you can see, whereas the volume was down 17%, group revenues were down only 2.7% in Q1, at EUR 9.7 billion. Automotive revenues stood at EUR 9 billion, down 2.7%.
After AvtoVAZ and Renault Russia's activities amounted to EUR 894 million, down 15.7% due to the impact of the conflict in Ukraine, starting from February 24th. AvtoVAZ's contribution amounted to EUR 527 million, a decrease of 23.1% versus last year. Renault Russia's revenue was EUR 367 million, only down 2.1% due to destocking and significant price increases. Excluding our Russian activities, automotive revenue was down 1%. The mobility services contribution amounted to EUR 8 million versus EUR 5 million in the first quarter of 2021. RCI revenues decreased by 2.9%, most of the impact coming from the decline in wholesale financing due to low level of inventories in the dealerships. I will now start the analysis with a review of the automotive division revenues on slide 10.
I'll focus on the automotive revenues excluding AvtoVAZ for the first quarter at the bottom of the page. Reading from the left-hand side of the slide this quarter, given the situation, we isolated the effect of Renault Russia operations, which impacted by only 0.1 points. Excluding the impact of the Russian ruble captured in the previous box, the forex impact was a negative 0.9 points, mainly because of the Turkish lira, and to a lesser extent, the Argentinian peso. Volume impacted by -8.9 points, mostly driven by the registration decrease of 13% excluding Renault Russia already mentioned. Geographic mix was stable. Product mix contributed 2.2 points, mainly due to the success of Arkana, launched in the second quarter of 2021, and to the launch of Jogger this quarter.
The price effect was once again the strongest positive of the quarter with +5.6 points. It reflects our continued actions to improve the quality of sales and the pricing of our vehicles as shown previously in the presentation, but also actions to mitigate cost inflation and forex impacts. This effect represents continued pricing improvement over Q3 and Q4 2021, and we will continue to push on pricing. The impact of sales to partners was negative at -2.8 points. It's mainly due to the decrease in production of diesel engines and vehicles for our partners, notably linked to the end of production of Master for Opel and Trafic for Fiat.
The last item, others, showed a positive contribution of 3.4 points, coming mainly from the performance of our after-sales activity, as well as Renault Retail Group and lower business with buyback commitments. If you turn to slide 11, global inventories stood at 336,000 units versus 487,000 units a year ago, and are flat compared to the end of 2021. It's worth noting the low absolute level, which is down 31% compared to March 2021. The backward coverage stood at 63 days. I will now comment on RCI's commercial performance. New contracts decreased by 9.7%, reflecting the lower level of re-registrations, partially offset by an increased mix of retail customers with very high financing penetration rate and a strong performance on the used cars activity.
The improved pricing of our range positively impacted the total new financings and value for the quarter, which amounted to EUR 4.39 billion, up 5.4%. This is another benefit of our commercial policy focused on value. The average performing assets decreased by 4.7% to EUR 43.7 billion due to the group strategy to optimize dealership inventories. As a result, RCI revenues were down 2.9% to EUR 0.74 billion. Let's talk about the rest of the year. During the full year results, we shared with you our views regarding the challenges and opportunities that we face in the year 2022. I will not come back on them in detail as they're still valid and, generally, even more so. Since then, however, the conflict in Ukraine has added geopolitical instability on the burden side.
As you all know, on March 23rd, we announced the decision to suspend our industrial activities in Renault Russia and to assess the available options regarding our stake in AvtoVAZ. Negotiations are ongoing and making progress. We'll tell you more as soon as we can. As a consequence, we updated our 2022 financial guidance with an operating margin around 3% and a positive automotive free cash flow. I'd like to reiterate that this updated guidance only reflects the impact of Russia on our financials. On the operating profit side, due to the weight of AvtoVAZ and Renault Russia, which represented together about 10% of our revenues in 2021. On the free cash flow side, due to the double impact in 2022 of the loss of cash flow contribution of AvtoVAZ and Renault Russia activities and the associated negative working capital requirement variation.
Nevertheless, please do not see our free cash flow guidance as a cut of EUR 1 billion, but much more as a cautious stance given the current environment. Outside of the Russian situation, the performance has been in, at least in line with our expectations. First, on volume. Regarding the semiconductors crisis, I confirm a forecast loss of production of roughly 300,000 units in the year, mostly in the first half. Visibility is still low, but the situation is starting to improve at a macro level. Secondly, as mentioned during our full year results, raw material and input cost increases will be more than compensated by productivity and pricing. I confirm that this is still the case, despite the incremental cost inflation that we're all seeing on the market.
We have already started since the beginning of the year to pass inflation through our pricing, and will benefit from our lineup renewal with Arkana, Mégane E-Tech Electric, Jogger, and Austral as the year develops. Thirdly, given the environment, we're addressing our cost structure with renewed energy. Our engineering, manufacturing, and purchasing teams are working together to accelerate our variable cost initiatives, both on the existing range and on the upcoming vehicles to secure our competitiveness improvement. We're also intensifying our efforts on the fixed cost side while protecting our investments for the future. When it comes to our mid-term targets, we told you during the full-year results that we were ahead of our 2023/2025 targets, and I wanted to make clear that this has not changed despite the crisis in Ukraine.
We will provide you an updated midterm financial outlook in a CMD in the fall of 2022. This capital market day will be a unique opportunity for us to demonstrate the in-depth transformation of the group launched by Luca. This concludes my presentation, and I'm now ready to take your questions. Thanks for your attention.
Thank you, Thierry. We'll start the Q&A session with Horst Schneider from Bank of America. Horst, please open your mic.
We can't hear you.
Now you can hear me, right?
Yes, we can. Thank you. Great hat, by the way.
Thank you. Yes. Always a pleasure. My first question is on raw material prices. Basically, you have given after the full year results, the guidance that the impact could double versus 2021. Now we have seen a substantial inflation of raw material prices again. Therefore, I would be keen to get an update on the expected impact this year. In that context, could you maybe also outline what is the impact of hedging on your raw mat impact? Specifically on nickel, you say that you hedged it a little bit. Can you update us or can you provide us a little bit more details when we see the nickel price increase impact? Is it this year or is it rather next year? The second one is also on electric vehicles.
You have committed to an NMC battery chemistry, and now we have seen the inflation of the nickel price. Do you think it makes sense now to switch to an LFP approach since just the cost advantage on NMC is getting just too significant? Thank you.
Thanks for the question. On raw material, as you mentioned, when we started the year, we had a view which already embedded a lot of a significant amount of increase. We had said, as you said, about two times the impact that we had in 2021. I think our view since then obviously has evolved. I think what we see on a full year basis now is at least three times, so a significant increase versus what we had foreseen. A couple things that I will say, maybe also to answer the second part of your question.
You know, if you look at our raw material base in total, it represents about 35% of our purchases. The way to look at it is about 50% of it is steel. Steel, typically, we have negotiations very early in the year. 90% of the steel is negotiated in January, February. For us that's locked in for the rest of the year. The other 50% is basically roughly 30% indexed, 20% non-indexed. On the indexed side, in the year of 2021, we gradually increased our hedging policy. We were typically around 15% hedged historically, and we've gradually increased that to be around 50%. You should take that into consideration.
For the unhedged portion, generally speaking, there's a lag of about three months between the moment there's a hike in the market and the moment we feel it in the income statement. For unhedged, indexed, and for the rest of non-indexed raw material, the gap is about three months. On nickel specifically, a portion of it is hedged. For the rest of it, we'll apply this three-month lag. You know, we saw a very significant hike a few weeks ago. Since then it's gotten better, but still obviously, it's a significant amount of pressure. On the battery chemistry, I think it's, you know, as you said, we're committed to NMC.
Our view is that, you know, from a general cost perspective, it's still an efficient solution. The energy density of NMC is better. The recycling capability with the NMC is also better. In the economic equation, the ability to recycle is a significant variable. If you're able to remonetize the battery after a second and third life, it changes significantly the dynamics. For now, no plan to switch from NMC to LFP, which would be a significant undertaking from an engineering perspective anyway. No change from that perspective.
Just maybe a quick follow-up, if I may.
Sure.
When you say you are hedged, for how long are you hedged? Is it just for this year, or is it on a three or five-year period, as for example, Volkswagen is doing that?
Yeah. It's typically on average on a two-year period.
Two-year period. All right.
Yeah.
That, that's helpful.
Okay?
Okay. Thank you.
We now have a question from Thomas Besson, Kepler Cheuvreux. Thomas.
Thank you, Philippine. I have three questions, please. First, on Russia. I understand you're still negotiating, but basically, can you help us understanding practically, how the relationship of, Renault with Russia is going to evolve? I think you still have your employees, for the time being to address. But basically, if we assume someone is effectively going to, take on, the responsibility eventually at one point of the industrial assets and the employees, are you still going to have any relations, with Russia, supply components or, allow, the operations to effectively run, or are you going to, stop, all relationships to, Russia? So basically understanding the rest of the year impact of Russia on Renault. The second question.
You mentioned the bigger impact of the semi shortage in March, April. We've seen that you had to stop the Douai factory for ten days. Can you help us understanding the impact that such hiccups have on the E-Tech Mégane launch, whether you are still comfortable with the fact it's going to be a smooth effect, and it will contribute as expected to group earnings in 2022? Thirdly, I think probably, for the time being, a more theoretical question, I guess. You confirmed the plan to separate the ICE and BEV operations of the group. I think you're doing a carve-out right now.
A bit like for Russia, can you try to help us understand how that will practically affect the group, the finances? Do you intend to separate each brand between BEV and ICE or let's say-
Sure.
Just a bit more material for that. Thank you.
Sure. Thanks, Thomas. Look, from a Russia perspective, you know, candidly, I wish I could give you more detail. It's an ongoing discussion with the Russian authorities. You know, it's making progress. Our goals that we stated when we made the announcement of our decisions in Russia have not changed. You know, with our employees, sort of future as one of the key elements that we have in mind, I'm afraid at this stage, I can't, you know, really tell you more. As soon as we have a resolution, trust me, we'll be eager to communicate what that is.
All I can say is negotiations are still ongoing and making progress at this stage. On the semi shortage, yeah. The view on the full year at the total business level hasn't changed. About a loss of about 300,000 units production for the year. As you correctly stated, mostly weighted on the first half of the year. Look, we prioritize the components that we get based on the key assets for us and the key vehicles, in particular, the ones that are key launches for us in the year, the ones that make the most margin in cash, and the ones that contribute to CAFE.
Mégane E-Tech is obviously a key project for us this year, so it's clearly at the top of the list of our prioritization. In the stoppage in Douai, the shortage situation has impacts on the production levels. There's a point at which the production is so low that it's better to stop it and to restart it with a high level a bit later, okay? That's the decision that we made on Mégane E-Tech for a few days in Douai. It will not impact materially the launch schedule or the launch volume. Mégane E-Tech is still going to be launched in France in the month of May, and in the other countries in Europe in the month of June.
No change from a schedule perspective, no change from a let's say contribution to the profitability of the group standpoint on this project. Again, it's clearly one of the cars that we'll want to protect to the maximum for this year, given, you know, its strategic importance for us. You had the question on the separation. We announced that we were carrying out a study to separate the ICE powertrain assets and the electric vehicle assets potentially. We made this announcement in the financial publication of 2021. You know, the project is making progress. The team is very engaged in making it happen.
We now have four teams dedicated to this, including on the finance side. We're doing initial work on carve-outs, et cetera. You know, at this stage, all options are still on the table, from you know, something as simple as showing the numbers separately and showing them as a dedicated business or, in the case of the electrical side, a full IPO that would take place in the second half of 2023, if it was to take place. We're moving aggressively on those two projects.
On the ICE powertrain asset side, we've had a lot of interest from partners since we made the announcement, and I would say that project is moving quite significantly as well. All on track at this stage. You know, again, the first goal of these projects, and in particular the electric vehicle side, is first and foremost to continue to run the business better. So to have a dedicated team with a dedicated business model, dedicated allocation of capital. And so that's what we're focusing on. When we started, you know, the Renaulution plan, one of the first decisions that Luca made was to reorganize the group in brands as opposed to the regional organization we had before.
It's very clearly a key contributor to the improvement of the results with a better focus on the products, better focus on the offerings. I think we view the projects on the EV side and the powertrain assets as the next step in that direction. How can we get the teams to be more focused? He always makes football analogies, right? He says, "I want people to have the jersey of the team that they support." I think there's great value in that, so we'll continue to pursue that aggressively.
As you know, we'll have a Capital Markets Day in the fall, and you know, we'll be disclosing more detailed plans in terms of what we want to do with these two parts of the business.
Thank you, Thierry.
Thank you, Thierry.
Now we have a question from Gabriel Adler at Citi. Gabriel, go ahead. Gabriel, I think you're on mute.
Yeah.
My first question is on the order book. Clearly orders are very strong today. They're at a record high. Are you seeing any signs of slowing growth in order intake, evidence that inflation is beginning to impact future demand for your products in Europe? Related to this, do you have any concerns about the way your prices are today and the impact that further price increases through the year may have on demand destruction in Europe? My second question is on the channel mix. The channel mix also looked very encouraging with the retail segment share increasing to 57%.
I'd just like to understand how sustainable you think that is and whether you expect to maintain or increase the share in the second half of the year as supply begins to improve and also longer term when rents on unused fleet begin to be billed?
Okay, thanks for the question. First on the order book, yeah, it's at really a record level for us, so 3.9 months of order book. As I said, you know, it's due in part to the shortage of components, but it's also mostly due to the fact that we're taking strong orders, right? I mentioned in the presentation double-digit growth in terms of order intake versus the last quarter of the first quarter of last year, sorry. You know, at this stage, we don't see a slowdown. The first three months were very encouraging from a demand perspective.
You know, both in quantity, in a quality perspective, you saw the mix in the order intake, which is very positive towards higher trims, towards E-Tech. You know, we've had a lot of interest in the new product launches, in particular, Mégane and Jogger. So at this stage, there's no sign of slowdown in terms of the commercial activity. The footfall in the dealerships has been strong as well, which I think is encouraging. From a pricing perspective, you know, there's different ways to do the price increases, right? One is just pure price increase that the customer feels.
The other elements that we've been driving have been improvement of the variable marketing scheme, reduction of bonuses, et cetera, which is another lever. As you say, we've been working on the channel mix very strongly. We think we still have opportunity in those areas. In fact, we should see continued improvement throughout the rest of the year. Fabrice, would you like to comment specifically on Renault?
Yes. Perhaps a few comments. Regarding the orders trend, I think we are benefiting from a green wave in Europe. It means our order intake is, despite price increase, quite good in EV and hybrid cars. This is the first point. The second point, we are also benefiting from our coming back on the C segment with Arkana, which is strong, now with first order intake from Mégane. It means up to now, no alert or even a good positive trend in orders on the right channels and on the right energy mix. Regarding price, we already took some price increase decisions. We will see in the coming months, depending on the supply.
It means we are also quite confident to manage at the same time price increase and growing order bank.
Xavier, on Dacia?
Yes. Maybe a more comment on one initial comment on Dacia. You see the results that we're having in revenues on the Q1. These results are pretty much based on orders that were taken last year. Since January 1st, we actually had three price increases on Dacia that are not yet in the revenues. Still, despite these price increases, they amount between 5% and 8%, depending on the model. We've had in March one of our best order months ever on the Dacia brand. For example, we took a significant price increase on Spring in April due to the issues on the raw materials for EVs, and still we'll be above our objective of orders for Spring in April.
Again, I mean, I don't see any impact so far on the order trend for our brand. Obviously, you know, the topic about how long can we raise prices without seeing a drop on demand is obviously something that we keep a very close pulse on. Two things I'd like to add on this. One is, residual values are improving as well. If you keep in mind that a lot of our customers are buying the cars with the financing, if residual values continue to raise, to some extent, the price increase is not felt as much as if they take it indirect.
The second thing I would say is, at the macro level for Group, you know, the Dacia brand becomes a very, very attractive value proposition in this market. So, in a way, having a everyday low price sort of brand in the portfolio, which is performing extremely well, as Xavier just mentioned, is clearly becoming even more of an asset for us than it has been in the past. Yeah.
Thank you, Thierry. Now you have a question from Charles Coldicott from Redburn. Charles?
Hi. Yeah, thank you for taking my questions. I had three, please. The first, actually keeping with the price dynamic, I think you said back in February that you expected to increase prices again this year, but that would be helped by the fact that all of your competitors are raising prices. Obviously, we had a very good price performance in Q1, so I was just wondering how that's played out so far, and whether you're doing better than the overall market on pricing performance so far this year. My second question on costs. You mentioned renewed efforts on variable cost initiatives and fixed costs. Should we think about that as just bringing forward savings that you had planned for later in the Renaulution plan, or something on top of the prior targets?
My third question, going back to the separation of the business into BEV and ICE, with a potential for an IPO next year. My question was just going to be whether or not you've discussed this with Nissan, what their view on the matter would be, and whether it creates an opportunity for a restructuring of the alliance.
Thanks for the questions, Charles. First on the price increase, you know, I think it's helped by the market, but I think we took our own medicine, right? We started seeing the price increases significantly earlier than the components crisis. I think our data says that we've caught up significantly versus the competition. On the Renault brand, from a list price perspective, I think we've caught up. We still have levers that we can play with continued channel mix improvement and continuing to work on the bonus scheme with the dealers.
Clearly, you know, the signs that we see from a pricing perspective earlier on in the year are very encouraging, which is necessary, right? Given the inflationary environment. You know, we had said when we started the year that we would have a price impact that would be of the same magnitude as the one that we had in 2021. Clearly, it's gonna be significantly above that. As I mentioned previously, we'll continue to more than cover the inflation and input cost with productivity and pricing mainly. On the variable cost, you know, I think that the way to see it is the way you described it.
It's mostly trying to accelerate some of the things that we had identified during the Renaulution plan. You have to look at variable and fixed separately. I think variable is probably where we still have the biggest opportunity. The biggest opportunity is more on the medium term, in particular with the new launches that we're going to do. We've spent significant efforts reducing diversity in the range from a commercial perspective, so simplify the offer to the customer, et cetera. Also from an engineering perspective, the number of parts that we use in the new projects is down almost 40% versus the projects that they've replaced. That has massive implications in terms of variable cost.
It means that you have less engineering to do first of all in the development phases. It means that you have better leverage in the negotiation with suppliers since you're buying each part in larger volumes. It means also that you need to stock less inventory, that you can have a more efficient after-sales business. I think for us, this is really a key element for the future. You know, we're continuing to work on the industrial footprint and adapting the capacity to the evolution that we see on volume, including in the short term.
With the pressure that we see due to the components, we've taken actions in terms of shifts in most of our plants today to adapt the structure to the volume that we see short term. It's something that we could do and change when the volume picks up. We can re-put the teams in the factories if we see the electronic components crisis get better in the second half, which is what we're forecasting. On the fixed cost side, you know, I think over the last couple of years, we've proven that we're able to take fixed cost out when we need to. You know, if you remember in the financial communication of 2021, we said we had taken EUR 2.3 billion out.
You know, we have a goal to be at EUR 3 billion by the end of 2025. What we're doing is trying to accelerate everything that we had on the radar screen. What I would say, though, is we're doing it in a way that protects our future, right? There are things that we're sort of sanctuarizing, I would say, today, in particular around the product development costs. You know, the R&D and CapEx we think are at the right level versus where we want to be. We're gonna try to stabilize that and keep it at the level where we're at.
We have a significant amount of activity on key product launches, which I've mentioned. Jogger, Mégane E-Tech, Austral, towards the end of the year, and also Mobilize Limo in the Mobilize side. We're not gonna cut the budget on these launches. They're strategic assets for us, and we want them to be successful. There are types of costs that we're keeping separate and trying to protect. On all the rest, we'll be as aggressive as we can, and short term, taking all the typical, you know, actions that you take when the environment is tough. On the separation question and the impact on Nissan, absolutely, Nissan is in the loop with the announcements that we've made.
You know, as you can imagine, a project of this magnitude needs to be approved by all the governance bodies that are in the group. Nissan, you know, is represented on our board. More importantly, we work with them on a daily basis. This is obviously something that we want to discuss with them. You know, I can't comment on at this stage on how Nissan will participate to the projects potentially. You know, clearly, it's something that we're working on together. Too early to talk about changes in the structure of the alliance linked with this project, though, at this stage.
Thank you, Thierry. Now we have a question from George Galliers, Goldman Sachs. George, please go ahead.
Yeah, thank you for taking my question. The first question, I actually just wanted to start with the suppliers, 'cause you did mention that through reducing the number of parts and complexity, you have greater leverage with the suppliers. Obviously, many of your suppliers are presently noting the high raw material and other inflationary pressures. Outside of what is in your contracts, what relief do you expect to give to suppliers, if any, this year, and can that be a headwind relative to 2021? The second question was just with respect to the improvements we're seeing in the business. You mentioned you've achieved more than EUR 2.3 billion on the fixed costs. We're seeing improvements in these Q1 results on the channel mix, also on the mix within the segments.
Obviously, your pricing has been very strong, so it feels like the only piece missing is the volumes. As the semiconductor constraints ease in the second half and in 2023, what's a good number to think about in terms of a potential operating leverage for Renault, given where your fixed cost base is today as the volumes return? Thank you.
Thanks, George. On the supply side, you know, obviously, as you mentioned, everyone is feeling the inflationary pressure. I already sort of commented on the raw material side, right? 50% is steel, all locked in. The other 50% is 30, 20 between indexed and non-indexed, the indexed part being roughly 50% hedged, right? That's clear. There's the indirect effects on our suppliers. Look, first of all, as I mentioned, in a similar fashion to what I mentioned on the raw material side, there's about a three-month lag between the moment there would be a price hike and the moment we would see it. With most of our suppliers, we have contracts in place, and these contracts take us through the year.
You know, there's obviously an element of protection that comes from the contract, I would say. You know, we have daily contacts with them, and you know, this is an industry where you need to be partners with your suppliers. I think you know, especially since the arrival of Luca, we've tried to make the relationships with suppliers evolve in a more partnership-oriented fashion. We work together. You know, in this environment, our first goal is to protect the profitability of Renault. At the same time, you know, we want our suppliers to be successful too. It's a matter of striking a balance that ensures that both sides continue to be successful.
You know, I think we've demonstrated that for the part that we have to accept from an inflationary perspective, we're able to pass it on from a pricing perspective. At this stage, this equation works, and it's going to continue to work for the rest of the year. Right. On the operating leverage, look, I'll let you do your model yourself in terms of what's the ratio to take from an operating leverage perspective. What I can tell you is, you know, with all the efforts that we've put in on improving net pricing, the operating leverage is improving. Our fixed cost structure has reduced significantly.
As you saw in the publications that we did early on in this year, the break-even point has dropped by 40%. When volume comes back, we should see a significant lift in profit. I think you're right. I think you know, that's really the missing link. Now we've made great progress on pricing, great progress on fixed cost. We've become more inefficient from an inventory perspective, as you can tell in some of the numbers that I showed you as well. I think we still have a lot of work to do on variable cost, and I mentioned what we're trying to do there.
Yeah, I mean, we're, you know, when the components crisis impact reduces, there's clearly upside for us.
Thank you, Thierry. We now have a question from, Jose Asumendi, JP Morgan. Jose?
Thank you very much. Three quick ones, please. Good morning, Thierry. The first one on product mix, can you comment please on the, you know, potential sequential improvement we could see in product mix thanks to the launch of the Mégane electric and the Austral? How do you expect this to evolve through the next quarters? Second, can you comment on these two buckets of sales to partners and others a little bit? Can you remind us of the dynamics behind sales to partners and the other bucket, and how does this other bucket contribute to earnings?
Then three, I guess we'll have to wait for October for the CMD, but when you think about the carve-out of BEV versus ICE, are you finding in your initial findings, in initial work, additional efficiency opportunities as a result of separating both business units that maybe you were not in the position to identify, you know, a year ago? Thank you.
Hi, Jose. Thanks for the questions. On the product mix, clearly, it will continue to be positive in the year. We're only very early on in terms of the launches. We haven't started selling Mégane E-Tech, and Austral will come in the second part of the year. I think on the Dacia brand, Jogger, as I mentioned, is off to a great start. It's significantly above our own expectations. I think we should forecast for the year continued product mix improvement. If you think about it on the more medium term, our goal is to raise the portion of the C segment in our portfolio.
We were at 27% a year ago in Q1. We're at 30% today. Our goal is to get to 50, right? Each time we replace or we add, let's say, the way to look at it again is the margin we make on a C segment is double the margin we make on a B segment, generally speaking. You can think of the impact that that will have. In the simulations that we had made in Renaulution, the margin that we have on the C segment rises from being 15% of the margin of the group to 40%. You know, definitely a big lever for us. On your second question, the sales to partners and the other bucket.
Sales to partners, the key elements that contribute to the drop versus last year are really two things. The first one is we stopped the programs with Fiat and Opel on the LCV side. You know, obviously those stopped on schedule at the end of last year. That's a big contribution. The second element is that with the energy mix, we're selling less diesel engines that we used to. Diesel is, you know, inferior to LPG for us now. You know, those are the key contributors.
I would say, you know, it's gonna continue to be a negative for the rest of the year, but probably gradually to a lesser extent, because we're getting to the bottom of the curve. We've got new partnerships that are coming into play, in particular within the alliance with Nissan and with Mitsubishi, and with also potential external partners. So on the medium term, this is something that should get better. On the other buckets, there's really three components to it. The first one is our after-sales business, which is performing very well. That helps us from a turnover perspective. It will help on the profitability side as well.
The second bucket is our Renault Retail Group, which is our own dealership network, which is performing well. Part of the good performance comes from the same levers as the rest of the business, namely, pricing improvement, more discipline on channels, et cetera. They're also benefiting from stronger used vehicle pricing and used vehicle sales. The third element that's in this bucket is the accounting treatment relative to sales with buyback commitments. When we sell a car with a commitment to buy it back, we record the revenue over the period of the rental. In this bucket, you have that accounting reversal from sort of a one-off sale to smoothing the revenue over the period.
With the focus on, you know, the most profitable channels and also the shortage on components, the proportion of sales with buyback commitments is smaller, which means that we're taking more revenue up front as opposed to spreading it over the period. You know, that's what explains the drop in this quarter. I think that effect was already observable last year. For the rest of the year, we shouldn't see such a lift. Now, last question on potential opportunities that we're seeing due to the carve-outs. I think the answer is, it's a great question, and it is absolutely yes.
The more you get into understanding, you know, to a deep level, the level of profitability of the different parts that contribute to your business, the better you see. You know, it's like the tide is going down, and the rocks are appearing in a way. I think there is certainly an element of that that we're discovering today. You know, there's value in the project, if only for that. I think it goes with what I said about having a you know focused approach on businesses that are strategic for you in the future. Yeah, we're learning a lot, and we'll continue to do so.
you know, we'll take these learnings and try to, you know, to embed them in our operations to try to continue to get better.
Thank you, Thierry. Now we have a question from Tom Narayan, RBC. Tom, I think you're on mute.
Oops, sorry. Three quick questions for me. I think in the prepared comments you said, Q1, you had 36% of sales, either BEV or hybrid. Curious if you could just give the breakout of BEV, plug-in hybrid, and regular hybrid. If you could comment on suburban versus urban take rate of BEVs. You know, OEMs that we've been meeting with recently have commented that the biggest obstacle they face with BEV take rate is public charging infrastructure. Curious if you could give us a sense on what you're seeing in terms of public charging infrastructure development and if that really matters given the suburban versus urban take rate. Regarding the decision you guys made to use Google, specifically in the Mégane and other cars you have.
You know, a lot of us have attended recent events with Mercedes and BMW, where they've showcased their software, which integrates their own mapping, and it seemed quite impressive. Just curious if you could give us some more color on what went into your decision to go with a partner, which presumably costs quite a penny, instead of doing the software in-house yourself. Thanks.
First of all, the number you stated is correct. It's 36% BEV and hybrid in the first quarter. It's a 13 points improvement versus last year. As Fabrice mentioned earlier, we are seeing a sort of a green wave very clearly. I think you know, it's very much on the hybrid side clearly. I think you know, we play the portfolio, right? We look at it as an overall offering of electrified products, and we try to play it as a portfolio. Today, clearly, the hybrid is representing the biggest portion.
However, EV continues to improve, in particular with the great success of Spring. I mentioned Spring earlier. Spring is the most affordable EV on the market right now. And we've seen take rates that are very good since we made that product available to the general public. So yeah. I mean, I don't know, Fabrice, if you want to comment specifically on the electrification.
No, I mean, we are clearly improving two levers. On one hand, EV, even though it will be better with the launch of Mégane E-Tech, of course. On the second point, our level of hybrid on our core models, Clio, Captur, Arkana, is now over 50%. It means we are beating with hybrid, the former diesel mix somewhat.
Thanks, Fabrice. On your last part. Sorry, I cut you off. Would you like to say something about that?
Yeah. Maybe to add something on that as well. I mean, Spring is representing roughly 12% of our orders. So it shows also that the strategy of going with BEV on Dacia is working. When we look at the sum of LPG for Dacia and EV with Spring, we're getting close to 50% over the last six months. LPG is also clearly an asset for the brand.
As regards our Google, so look, you know, I would say, for these elements as well as the EV value stream, so software and EV are key value chains for us as a business. What we did with the team is look at the entire value chain that constitutes these things and look at where we think we need to be doing it internally, and where we feel it's better for the customer, more capital efficient, more future proof to partner with a tech company or someone that's very well positioned in the market. On the connectivity side, we made a decision to partner with Google. I think the partnership brings great assets.
You know, I think anyone that's tried to drive Mégane E-Tech can testify that it's a fantastic environment, and customers that have seen the cars love it. It brings assets such as Google Assistant, Google Maps, which are fantastic, right? Google Maps is a fantastic thing to have on your car. I think it's for us. It's a winning partnership. You know, we have lots of interactions with Google, not only on this part of the business, but also on other parts and generally speaking of the relationship with Renault.
You know, in terms of what you mentioned on i n terms of cost, you know, I'd be interested to see the trade-off to be made between the cost of developing some of these things internally versus purchasing them from someone with whom you have an existing relationship on many different other parts of the business. You know, certainly for us, we thought that Google was a good path. You know, again, I think it's working. I think the proof is in the pudding somehow, and how the customers will receive it in the cars. Mégane certainly seems to be very well received. In the first contacts with the press, you know, on Austral, this is viewed as a significant asset of Austral as well.
Look, I think it's at this stage, it sounds like the right decision.
Thank you, Thierry. We have, now, last question from Philippe Houchois, Jefferies. Philippe, go ahead.
Yes, good morning, and thank you. Got three quick ones. The first one is I understand there are lots of moving parts at Renault right now. But as I listen to you, is the rising penetration of EVs in your mix a margin headwind or are you basically able to offset that and is basically similar profitability for your ICE offer compared to your EV offers? The second question, just housekeeping, but I think earlier this year you told us pretty much a EUR 700 million-EUR 800 million dividend from RCI. I understand that has now changed, and you downgrade your cash flow guidance. I know you made some public noise about that we shouldn't now think that we just look at positive or breakeven. What would be...
What was behind this cut in the guidance on the cash flow? Because I don't think Russia was such a big contributor. Yes, you have less auto earnings, but you should still have this growth that helps your working capital in the second half of the year. The last point on the pricing and affordability, and what I observed during COVID is that we saw used prices improve much more than new prices. Everything went up, but used improved a lot. Now we're getting a lot of mixed signal on the used pricing environment, whether it's in the U.S. or in Europe. For me, simply put, when you buy a car, you sell a car. When used was improving faster, you're effectively helping affordability. Now it is potentially reversing.
Is that something that you see already in your business? Is that a threat that we should take into account, that potentially you need to raise new car prices, but the used pricing dynamics are basically flattening or reversing? Thank you.
Thanks for the question. On the EV mix, you know, the EV cars today in our range need to contribute as much as the ICEs. You know, at least on a unitary marginal profit sort of basis. All right? If you take Mégane E-Tech, it's not a dilutive vehicle for us. And in all the you know sort of projects that we've got in the development portfolio, the EV vehicles are subject to the exact same thresholds in terms of profitability, in terms of return on capital, et cetera, as the ICE vehicles. Okay?
The answer is we need this segment of our operations, which is the future to be as contributive as the rest of the range. One thing that I'd like to say on this topic is we've been in the EV game for quite a while, and ZOE has been on the market for, I guess, almost 10 years now. You know, a lot of the investment that it takes to initially get in the EV business is behind us. When we develop a new EV, it doesn't cost us more today than when we develop a new ICE vehicle, right? I think it's something to keep in mind because it's potentially something that doesn't necessarily apply to all the competition.
On your second question on free cash flow, you're correct. The guidance we gave on RCI is EUR 700-800 million of dividends this year. No change from that perspective. Should be in the first half. Okay? On the guidance for free cash flow for the rest of the year, I think to make it to answer your question on, you know, why say EUR 1 billion less, facially compared to what we had said previously. First, the impact of Russia is quite significant because we're losing the inflow from Russia, but like the rest of the business, Russia was also operating with a negative working capital.
As the volume reduces, you know, the year the volume is cut, you're continuing to pay the suppliers for a while more than you're getting paid by customers, right? There's sort of a bleed out of working capital that has a double whammy effect on this year, which clearly will not happen again in the outer years, right? The impact of Russia in the outer years is nowhere close to EUR 1 billion. However, this year it's less than EUR 1 billion also. Frankly, you know, for simplicity of communication, we were not gonna say free cash flow is gonna be above EUR 200 or above, you know, EUR 250.
We just opted for simplicity of saying it's gonna be positive, especially if you think about the fact that we're quite in a volatile type of environment. The impact of the components crisis is still generating pretty significant swings from a working capital's perspective. We communicated a positive free cash flow, which, you know, you should take as a conservative position, right? Now, on your last question on the pricing and you know, the potential impact on customer values, maybe I'll let the commercial team comment. First off, I will say that you know, residual values have been improving and we still have an opportunity to improve them significantly.
I think the new products that we're launching should come with much better residual values than the previous generation. That should help from a customer standpoint, you know, to compensate a bit of the upfront pricing impact. Fabrice, would you like to comment on the Renault brand?
I mean, I think regarding the used car demand or used car prices, which was your question, I think, the offer in terms of used cars in Europe, at least for Renault and Dacia, will be limited because of our channel mix oriented on private. It means, it should enable us to maintain high prices in used car and therefore high prices in new car. Thank you very much.
All right. Listen, I think that's all we have time for during this session. Thanks very much for your participation this morning, and thanks for the questions. As usual, we remain at your disposal for any more details that you would like to get about our performance. Thanks very much and have a good day. Thank you.