Good morning, everyone, and welcome to Renault Group's third quarter revenue call. Thank you for joining us. With me today, Duncan Minto, our CFO, together with Fabrice Cambolive, Chief Growth Officer and CEO of the Renault Brand, and Katrin Adt, CEO of Dacia. Please note that this call is being recorded and will be available for replay on Renault Group's website.
As usual, before we start, I would like to remind you that today's discussion may contain forward-looking statements reflecting the Group's current expectations. Actual results may differ due to a number of risks and uncertainties, as detailed in Renault Group's public disclosure. Duncan will walk you through the key highlights of the quarter, and we will then move to a Q&A with Duncan, Fabrice, and Katrin. Duncan, the floor is yours.
Thanks, Florent. Morning, everyone. Afternoon, if you are joining. Thank you very much for your presence today, as always. Maybe I should start with the key message today would be that the third quarter played out as we expected. Revenue was resilient. The quality of the revenue bridge that you will see remains solid, and we confirm our 2026 financial guidance. Let's begin with the, excuse me, clear acceleration in EV demand. In Q3, our EV passenger car sales in Europe increased by 85% year-on-year, bringing growth over the first nine months to 59%.
This reflects the strength of our refreshed and attractive lineup, our dealer and after-sales network, and the financing solutions offered by Mobilize Financial Services. Our captive is a key commercial enabler. It makes the transition to EVs more accessible through competitive financing and leasing solutions, supports dealer activity and customer conversion, and helps sustain loyalty and residual values over the vehicle life cycle. Our manufacturing and supply chain set up allowed us to capture this commercial momentum, and I congratulate the efforts done by all of the teams.
Our plants are running at high utilization rate, 85% worldwide and above 95% in Europe, and we have added a third shift in Douai to sustain the pace. At the same time, inventory management remains disciplined. Total inventory stood at a healthy 532,000 units, with a more pronounced destocking at independent dealers than last year. Finally, at the bottom right, you will see our European order book remains solid at around two months of forward sales, giving us good visibility while preserving the flexibility to align production with demand.
As always, we remain focused on retail sales rather than pursuing volume through low-quality channels. In Europe, retail accounted for 65% of our Q3 passenger car sales. That is around 20 points above the market average and grew by 5%. At the same time, in Q3, we reduced short-term rental and demo sales by 18%, despite these channels growing by 3%. This channel discipline supports residual values with Renault and Dacia 5- 13 points above the market average. In turn, stronger residual values support competitive leasing offers and protect new car pricing. As a reminder, we estimate that one point of residual value is equal to around one point of discount.
If we look at group volumes over the first nine months of 2026, Renault Group sold 1,662,000 vehicles, down 2.2% year-on-year. This headline reflects a contrasting brand and regional dynamics. Let's look at those, starting with Renault Brand sales, which rose 1.1% over the first nine months, taking the brand to second place in Europe. Renault Brand outperformed the market across EVs, retail, and LCVs. EV sales grew by 75%, compared with 41% for the market, supported by renewed and attractive lineup. I'd like to stress that even if still slightly dilutive on group margin, our EV growth is profitable. Retail sales increased by 20% versus 11% for the market, reflecting the focus on sales quality.
At the same time, Renault Brand decreased its short-term rental and demo sales by 22%, while the market was strongly up. Finally, LCV sales rose by 8% in a market growing by only 1%. Master led the large van segment, while Kangoo and Trafic both ranked in the top three. Turning to Dacia, as we'd already mentioned, the brand did suffer from a lack of product to fully capture the market shift towards electric vehicles, particularly considering their retail focus. With Spring as its only EV and in transition phase ahead of the model's renewal, Dacia's addressable market was reduced significantly. As a result, sales declined 12.8% in Q3 and by 9.7% over the first nine months.
This temporary product gap was amplified by an exceptionally high comparison base in Q3 previous year and stronger Chinese competition, particularly in the C segment. Dacia nevertheless remained on the European retail podium, with Sandero retaining its position as the best-selling passenger car among retail customers. At the same time, electrified vehicles continued to gain traction, reaching 31% of the sales mix. Full hybrids alone accounted for one out of four Dacia sales, making Dacia the fourth largest full hybrid brand in Europe.
Beyond EVs and hybrids, LPG, representing 39% of Dacia sales, remains a key pillar of Dacia's value proposition, materially lowering running costs and reinforcing its total cost of ownership advantage. Looking ahead, Q4 should progressively benefit from the ramp-up of Sandero hybrid, the New Spring, and of course, Striker. Every Dacia model now offers an electrified powertrain. Q4 will also benefit from a stronger order book supported by improved order intake in the recent months.
Turning to Alpine, registrations rose by over 60% to more than 12,000 units over the first nine months, already exceeding last year's volume full year. A290 led this growth with more than 8,000 units registered, while September was the best ever month for EV orders. Although its nearly 2,000 registrations remain below our volume ambition, the A390, which is now available in GTS version, is progressively establishing a second pillar for Alpine's electric growth.
Turning now to the wave of the next products. Our product offensive is fully electrified, reflecting the two complementary pillars of our strategy, all-electric vehicles and hybrids. This approach allows us to capture accelerating EV demand while offering hybrid alternatives suited to different customer needs and charging infrastructure. Our launch momentum continues in the second half with the new Mégane E-Tech, Trafic Van E-Tech, and Duster E-Tech for India, alongside the Dacia launches I just mentioned a couple of seconds ago. Alongside these electrified launches, Niagara will also support our international product offensive.
Their contribution will build progressively with a full year effect in 2027. Moving from product to the figures, let's go through the third quarter revenue and the main drivers behind the evolution. In Q3, group revenue reached EUR 11.6 billion, up 1.5% on a reported basis, while registrations were down 6%. Automotive revenue was stable year-on-year at EUR 9.8 billion. We will dive into that in a couple of seconds. Before that, Mobilize Financial Services revenue increased by 11% to EUR 1.8 billion, confirming the strength and recurring nature of the captive's contribution. In other words, despite lower volumes and without pushing the metal, we kept automotive revenue stable and grew group revenue.
Over the first nine months, group revenue reached EUR 41.8 billion, up 7.1% compared to last year. Drilling down to the stable automotive revenue in Q3, starting with currency, it was mainly related to the appreciation of the Brazilian real, the Colombian peso, partially offset by the depreciation of the T ü rkish lira. The second bucket volume effect was negative at 5.9 points, reflecting both the declining group registrations in a challenging environment and the higher destocking this quarter at independent dealers.
Lower volumes were offset by sales to partners and positive price and mix effects, keeping automotive revenues stable. Looking now at registrations in Q3, group sales declined by 6%, reflecting contrasting brand and regional dynamics as discussed. If we start by focusing on the Renault Brand sales, on international markets, Q3 was clearly intense, notably in Latin America, declining markets in Türkiye, Argentina, and South Korea. In Europe, PC sales were up 6.3%, thanks to two main catalysts, EV and retail. EV sales doubled in Q3 against a market growing by 55%, supported by the success of our renewed lineup.
Twingo E-Tech electric has recorded nearly 26,000 sales since its launch and already ranks first in its segment. Retail sales increased by 31% compared to 12% for the market, a strong demonstration of the focus on sales quality. Moving to Dacia, as we just commented, Q3 sales were down 12.8%, but I must highlight the high comparison base from last year in Q3. Alpine maintained the strong growth momentum with sales up 58%. Importantly, the decline in registrations did not translate into inventory build.
Total inventories stood at 532,000 units, as you can see on the chart. The end of September, this is down compared to June, as per our guidance. Independent dealers reduced their inventories by 118,000 units in the quarter versus 97,000 units in the quarter three of 2025. At group level, inventories followed their usual seasonal pattern and stood 220,000 units in line with the end of September last year. As mentioned earlier, this healthy inventory management is supported by a solid order book of around two months of forward sales in Europe.
Looking to year-end, we expect total inventories to trend towards the lower end of the 525,000- 550,000 range we give, enabling the group to smoothly operate in the last quarter. If we move now to the next one, which is sales to partners, which had a strong positive effect of 4.9 points in the revenue growth, driven by two main factors. Firstly, our partnership with Geely in Brazil. It is strengthening. It is the ramp-up of the distribution of Geely vehicles and the start of local production through Renault do Brasil joint venture since September.
Secondly, in India, the integration of RNAIPL since the consolidation point, which was August 1st, 2025, contributed another EUR 165 million or 1.7 points of growth in Q3. Ongoing partner programs also contributed to this performance. I could note Nissan Micra, Mitsubishi Grandis, and Eclipse Cross. If we review the next point, which is price, product mix, and geographical mix effects, the price bucket was positive at +1.1 points. Price increases on international markets to offset foreign exchange effects were partly offset by pricing pressure in Europe.
Higher battery trim versions for the Renault 5, as an example, as well as HEV powertrain for Bigster, Duster, and Sandero also supported the positive price effect. Product mix was solid at 2.3 points. It was driven by the transition from Clio V to Clio VI, which is a higher average selling price. Also by the light commercial vehicles, Master and Trafic, and the success of our EVs. The geographical mix contributed positively at +0.5 points, mainly thanks to higher sales in France and Germany and a lower exposure to Argentina. The last point in this quarter is the other effect was negative at 3.1 points.
This mainly reflected a return to a more normal inventory level at Renault Retail Group, or Retail Renault Group, which is our wholly owned independent dealer network, after particularly low levels at the end of June 2026. By the end of September, RRG's inventories were back in line with the same period of previous year. Mobilize Financial Services delivered another strong quarter. New contracts increased by 1.6% year-on-year, while average performing assets grew by 5%, supported by the increasing new financing and higher average vehicle selling prices over recent years. As a result, MFS revenue increased 11% to EUR 1,761,000,000 in Q3.
If we now move towards the end of the year, while the environment has changed a lot since the start of the year, our commitment has not. Beyond the challenging market conditions, this year has brought a sharp shift towards electrification. Yet we confirm our 2026 financial guidance with a group operating margin of around 5.5% of group revenue and an automotive free cash flow around EUR 1 billion. As stated at the first half results, we continue to expect a slight improvement of operating margin in H2 versus H1, with the usual seasonal uplift expected to be less pronounced than in previous years due to higher raw material costs and inflation.
Our confidence rests on the strong fundamentals I've described, supported by the relentless execution on purchasing performance, productivity, and strict cost discipline. To conclude, Q3 demonstrates the strength and agility of our operating model. Our three complementary brands, highly utilized, flexible industrial footprint, strong dealer and aftersales network, and supported by Mobilize Financial Services. This has all allowed us to switch, adapt swiftly to a changing demand while protecting value. That's what's at the core of futuREady, and it's in action. I thank you for your attention, and we're now ready with the team to take your questions.
Thank you, Duncan. The first question will come from Thomas Besson from Kepler Cheuvreux. Thomas, can you please open your microphone?
Sure. Thank you, Florent. Good morning. I have two questions, please. The first is, as you just said, Duncan, the environment has changed quite substantially over the last few months. Can you just help us understanding a bit better what allows you to offset what's going to be ultimately lower volumes in the second half than you probably initially planned? What looks like a bigger push from Chinese automakers in Europe before the introduction of the hybrid cap, substantially higher input costs, and a bigger shift to electrification.
Any kind of figures on the headwinds and the pluses you can see against that would be very helpful. The second question is about the evolution of used car prices in Europe. They've been sliding quite substantially over the last couple of months. I understand that you're doing everything you can for maintaining your own residual value substantially above market average. Do you still see a negative impact, or do you believe that your retail policy isolates you from these issues about declining used car prices? Thank you.
Thanks, Thomas. Thank you for your questions. Yeah, the environment has been quite different. I'd say the environment had a more dramatic shift between Q1 and Q2 for us than in Q3, which has pretty much run in line with our expectations as we set it out in July. I maybe say that when we talked about input costs, we called out in February EUR 600 million between raw materials and inflation. We had a EUR 200 million impact in the first half. We confirmed that figure in H2. So it's not something that's taken us by surprise. So I'd say that's in line with our expectations.
Clearly, there has been a continuous rise in demand in EVs, certainly in the retail markets in Q3. We'd seen the big switch in Q2, but it's picked up in Q3. There is an increased pressure, and we are feeling it, if I would say, on Dacia's side in the C segment, I guess, in terms of Chinese competition. But we have been working internally on execution. You know our vision on fixed costs. These are things that we control. That is something you will see in the full year results, which has the proof in the pudding. In terms of variable costs, we have a guidance of over EUR 400 per unit.
On average, over the years, we achieved that in H1, and you will see the strong dynamic continues with some excellent work between purchasing and also our suppliers. Costs, obviously, we believe we have a strong dynamic, and it is helping us offset slightly lower volumes. But things have not changed dramatically since how we saw the outlook in July when we presented H1. Maybe on used car prices, Fabrice, do you want to say something about Europe?
Yes. Used car prices and the residual value. As you say, we have a competitive advantage to have a better residual value than most of our competitors, between five and 10 points in the main five countries in Europe. It is not by chance, because we are doing a zero risk commercial policy in terms of residual value. What does it mean? We are lowering our short-term rental volumes. It means in six months, in nine months, we will not have a problem of the market, which is far above what we are doing in terms of reselling buyback from a short-term rental.
We are focusing our commercial policy on retail. It means most of our used cars which are coming back are buyback from retail consumers, which are coming back in our network. We are monitoring that very carefully. What do we see? First of all, we do not have any overstock in terms of used cars. We do not have aging stock in terms of used cars. We have now a slight move. It means the residual value of the EV is improving, and the residual value of the ICE is slightly decreasing.
We are monitoring that very carefully, and we have action in place to make the resale of this car seamless with our network, and it is part of our competitive advantage we presented in the futuREady with this full life management. I would say that this is under control, and we are structurally resilient on that due to our very safe commercial policy.
Thank you, Fabrice. This is— Thomas, t his is also favored by the very good support and the common work done with Mobilize Financial Services, with a prudent approach on residual values overall, thanks to a third independent party's estimates. I guess we are conservative in our mode, whereas we might see that some of our peers are more aggressive on the residual values they set in the first buybacks of the cars, and might struggle more as well in the used vehicle market afterwards. I hope we answered your question—
Thank you.
—Thomas, thank you. The next question will come from Horst Schneider. Hi, Horst. Good morning.
Good morning. Thanks for taking my questions. The first question that I have relates to product mix effect in Q3, because it comes down sequentially. Maybe it does not mean anything for earnings, but I would have thought that the product mix effect is stronger given EV sales increased that much and that year was down. Maybe you can explain the effect and what we should expect going forward.
The number two is, we saw from some companies, especially from the U.S. car makers, we saw some comments about material cost impact in 2027. Whatever statement you can make, what kind of impact you expect would be helpful. The last one that I have is regarding this EV share, and you are growing nicely the share in the market. Can you maybe share what is now the share of the BEV sales in your order book? Thank you.
Hey, Horst. Thanks for the questions. Product mix, you kind of answered it yourself. Yeah, slightly lower than your expectations, perhaps. I think we need to look at the fact that we've been doing it quarter- after- quarter after quarter, so the comparison bases start to get a little bit more complicated. I do not think it has a dramatic impact on our next EV mix. In our order book, I am not sure if I have the specific B—
Yeah.
—percentage.
Profit.
Yeah, but for B segment.
[inaudible]
Well, we will see if we have got the—
Not B segment. In general.
Oh, in general.
Oh, in general.
Sorry, I heard B segment.
In general, this is 40% of the total order book to be compared to 28% a year ago. What is very interesting for us is that we see that the order intake year to date for EVs is growing 60% compared to the previous year. So a strong dynamic. Again, I think it is very important, as you mentioned, the price mix on the profitability of our electric vehicles, that we are profitable on all our electric vehicles, and this is not the case for some of our competitors out there. It must be highlighted as well that the profitability on the A and B segment vehicles, which benefit notably from shorter development time and a more competitive platform, RGEV Small, are above the profitability of our C segment EVs for the time being.
This will be solved with the continuous cost improvement that we deliver on the C-segment cars towards 2028, and the introduction of RGEV Medium 2.0 platform in 2028. All in all, I think this is something that everyone needs to keep in mind. EV is, yes, dilutive still at group level. But the margins that we generate on our EVs are clearly very decent and not as dilutive, I believe, as some may imagine.
But that means the rising BEV share is still dilutive for margin in general. Is it a margin burden going forward or not?
Yeah. Not going forward eternally. I think as Florent just pointed out, going forward in the short term, yes, it will still be dilutive, but as we work further on cost reductions and the introduction of new platform, that switches back in time.
Keep in mind that on the hybrids, we also continue to work on the cost. This is something that is notably enabled by Horse Powertrain. We have a target of reducing by up to EUR 1,000 per HEV powertrain, the costs in the midterm. This is also delivering, and this is a competitive advantage that many of our peers don't enjoy.
That target will soon become a reality. Maybe just to come back, because you said about material costs in 2027. I think that's something we'll bring up and quantify in February, when we give the full year guidance. But it's not a surprise. We knew that's happening. We have rising raw materials. We have memory, RAM cost, and we have electric components. This is something that's hitting the market in general, and that's why you need to not forget the fact that we're targeting to do a EUR 400 per unit variable cost reduction on average year- by- year. This was built into the plan.
Okay. Last one, Duncan, all the best for the future.
Thank you.
Thank you, Horst.
Yep.
The next question will come from José Asumendi, from JPMorgan. José , the floor is yours.
Thank you very much. Let me start saying also, Duncan, thank you very much for the great collaboration over the past years. All my very best wishes. Couple of questions, please. Can you talk about what is a little bit behind the pricing number? Again, positive in the quarter, a little bit of the puts and takes. I am trying to see if there is also some strength of the product that is reflected there on that pricing momentum.
Or is it part of that mix of BEV versus ICE, et c? Then second, Duncan, on Dacia, please correct me if I am wrong, but I tend to think that this is a high margin product that delivers higher margins than the group. So should I be concerned that deliveries are down on the quarter? Will Dacia sales rebound going forward? Any thoughts around that topic as well? Thank you very much.
Okay, thanks, José , and congratulations on your award recently. Pricing, what is behind it? I think Fabrice has already commented in terms of the value of a long-term approach to quality sales channels. We haven't been pushing the metal, and that allows us, combining the use of MFS to offer competitive financing offers to our customer and monthly rentals and leasing. We have had, in that positive pricing bucket, some impacts of version mix going up, and also on the R5, in particular, but also across Dacia, with hybrid coming on Sandero and mix improving on Bigster and Duster as well.
I think we put the figures on the slide, José . We're not participating in channels that have high discounts and put pressure on residual values going forward. It's really discipline coming through there. In terms of Dacia being higher than average, yes, Dacia is higher than average in terms of margin. We need to take into consideration that we knew that this would change over time as well. Hybridization, having a full 100% electric offer. Even if we look at the switch from old Spring to New Spring, in fact, there's a big positive swing in profitability when you compare the two products there. In terms of sales dynamic, Katrin, do you want to maybe add something on what's going on with Dacia at the moment?
Yes. Thank you, Duncan, and hello, José . As Duncan already said, 2026 is certainly somehow a transition year for Dacia towards electrification. We just launched the new product, so Sandero hybrid, best-selling car in the retail market. Spring full electric, Striker with the most efficient hybrid engine in the market. So we are quite confident to increase volumes going forward.
José , did we get everything for you?
Thank you very much.
Thank you.
Thank you, José.
Got everything. Thanks so much. Appreciate it.
And the next question will come from Pushkar from HSBC. Hi, Pushkar.
Pushkar, we cannot hear you.
Oh, hi, can you hear me?
Yeah.
Yeah.
Sorry. Can you hear me?
Yep.
Okay. Sorry to just come back on this topic of Dacia again. We've said that the struggle through, or the pressure in 2026 has been because there was lack of BEV product. There's not much BEV product coming through in 2027, right? I'm just wondering, just directionally, 2027 is still a year where you face pressure. Would that be a correct assumption? There's no reversal of the weakness that we saw in 2026. That's the first one. On the order book, typically the Q3 order book is a little bit on the lower side compared to Q2, and that's because of the seasonality, the phasing of forward sales, right? It wasn't the case this time around. What does this mean from a retail sales point of view for Q4 then? Just trying to understand that. Thank you.
Katrin, maybe we'll let you answer Dacia first.
Yes. Thank you, Pushkar. We are confident for 2027 because we have a full year then of Spring. Spring, which is made in Europe and also eligible to governmental incentives in some countries. We have a two-leg strategy, so we are not only building up our EV portfolio, but we have also hybrid now on the entire models. So we have an electrified portfolio. We are already the fourth brand in hybrid, and we are intending to develop in that even more, and it might be also that we see a little surprise in 2027 also besides of that.
For the models, Dacia year- to- date, nine months was down nearly 10%. We do expect the full-year sales to be in negative territory against last year, with Q4 sales to be slightly above Q4 2025. So keep this in mind for your model. The second question you had, Pushkar, was on the order book. The order book was around two months. In fact, it was slightly below two months as a precise figure, which is absolutely normal because this forecasts the forward sales and, as you can imagine, Q4 sales are always higher than Q3 by seasonality, so there is no change to that seasonality this year.
In terms of order book, we do not communicate on the detail per nature of channel mix. But as explained by Fabrice, the focus is really on the retail. We want to make sure that we protect margins and have a high cash flow conversion. This goes through retail, while in the meantime, lowering the short-term and demo channels exposure. So this is really the strategy of value. This is enabled because we have, again, a high utilization ratio for capacity and we can bring some flexibility in our economic model to make sure that we do not build something that would destroy value over the long run, notably on the residual values.
Thank you. If I can ask just one more on the sales to partners. The India effect would go out of the bridge in Q4, but the Geely effect would continue. Can you just talk about the sequencing of these projects or partnerships so that we get an idea of how this moves, just not just Q4, but then beyond that?
Well, in fact, the sales to partners will remain a good support for us moving forward in the medium term. We started the distribution of Geely cars in Brazil in July 2025. In September, we started to produce the Geely cars in the Renault do Brasil factory. So this is gaining momentum on that front. As you know, we ramp up Nissan Micra and Mitsubishi Grandis and Eclipse Cross as mentioned by Duncan. Next year, we will have the Nissan Pixo, which is the derivative of Twingo, that will start to kick in. We continue as well to work on LCVs for our Nissan colleagues in Europe and we produce for Nissan in India for the local and the export market.
So this is set to continue. 2028, we will have Ford first BEV kicking in. This is again another demonstration of our ability to be competitive and provide with the best economic model for our partners, including in Europe against Chinese competitors. This is set to continue, and we will be vocal around potential other announcements. We are not closed to partnership opportunities, as you may know.
Thank you, Florent. Thank you, Duncan, and all the best for you.
You are welcome. Thank you, Pushkar. The next question will come from Philippe Houchois from Jefferies. Philippe? I do not see your hand anymore. I do not know whether Philippe is connected or not. Philippe, you can press star six to unmute your phone, if you—
Can you hear me?
Yes, Philippe, we hear you. Yeah.
Hello?
Yes.
Yeah. Okay. Sorry about that. Duncan, thank you very much, and good morning to you all, and all the best, Duncan. I have a question, and it is as much as a comment as a question, but one thing I noticed is most of your peers have talked about very strong order intake in EVs, and therefore backlog. Some of your peers have also had a problem producing enough. In your case, you have a very strong performance and no unusual order book. I am just wondering any comments that you have in terms of having secured better sourcing of batteries or smoother manufacturing process to make sure that you actually gain share in EVs that also do not have a kind of unusual backlog.
Any comments on this would be helpful. My question is more, I think we have been used for years to this idea that Dacia is a much more profitable brand than anything else in the group. You are having quite a good year despite Dacia being down. We know about the shortage of models in electrification. Going forward, should we stop assuming that a better Dacia is definitely going to uplift the margin? Do we have basically a more homogeneous margin across LCVs, Dacia, and Renault cars? Thanks.
Okay, Philippe. Thank you for the questions. I did say when I called out to congratulations to the Renault teams, both across purchasing, supply chain, manufacturing, and the agility and flexibility that was demonstrated in reacting to demand. My colleagues on the right-hand side of the table here jump up and down in all of the management meetings, trying to get every single EV we can, and they have done a fantastic job to be able to respond to that. In terms of saying are we better than our competitors, I will let you judge.
Certainly, we have worked strongly with partners in terms of suppliers, and we have multi-sourcing options. We are already well using our capacity, but we have added a third shift in Douai. We are meeting the demand, and I had coffee this morning with Thierry Charvet, who is our Head of Manufacturing and Quality. Don't foresee any issues through the end of the year. So, quite comfortable on our ability to deliver that. Let's be honest, though, when we talk about an order book of circa two months, the EV order's a little bit higher than that, and the ICE is a little bit lower.
We're still managing to meet demand, but it is true that the order delivery delay for EVs is growing, and we are doing everything we can to meet that demand. In terms of your second question, which is Dacia, which is more profitable, this is maybe my fault if I've given you, in the past, some kind of expectation that the gaps are massive. We do have a higher profitability. We have vehicles in the Renault range that match that. You mentioned LCV as well.
The evolution of profitability over time is something we took into the futuREady plan. When we talk about increasing the availability and mix on the hybrid side, obviously, you're adding a second power unit to an existing car, so there is higher cost in there. That puts pressure on margins. Florent talked about the EUR 1,000 cost reductions and the contribution of Horse over time. So, there's a dynamic that was taken into account in our plan, and that will play out over time.
Obviously, EV, we said, was dilutive, but it's profitable, so this means that the gaps that maybe the market is imagining compared or across different brands or different powertrains is not as wide as one may first have believed. So, cost reduction is key. Technology is key. Developing things in the shortest time possible is also a big driver, and these are things that we've proven with the launch of Twingo and Spring to date. I think you will see in the dynamic going forward.
Thank you, Duncan.
Thank you very much.
Thank you, Philippe. I see, Thomas, you raised your hand. As it's a follow-up, if you don't mind, I would like to take Michael Foundoukidis' questions first. Michael from ODDO BHF. Good morning, Michael.
Yes, hi. Do you hear me?
Loud and clear.
Good morning. Thanks for taking my questions. Maybe a question on hybrid caps on Chinese OEMs. It has been discussed. We had some news, but any update on your side? That is the first question, and then on the made in Europe development as well, and the CO2 change, what does it mean for Renault in maybe in 2027 or 2028? Those are the two questions. Thank you.
Okay, Michael. Thank you for those. This is obviously some breaking news that has happened in the past few months, but we welcome the European-China agreement to limit imports. We have been advocating for quite a time. I think François was very vocal on that point, that a deal would be good, and the recent announcements are positive. This agreement is important. The France and Germany alignment, both are important automotive countries. And we expect to have more visibility of the final conclusions, I guess, in the coming weeks.
But at this stage, despite the flexibilities that were introduced, the main risk, which was the CO2 2030 target, remains probably insufficiently covered. The text is very complicated. In fact, a set of five different texts, and the negotiation process probably does not take into account the reality of European industrial ecosystem today. So, let us see. We think things will come forward in the near future, but we still think there are certain things that need to be discussed.
Thank you, Duncan. Thank you, Michael. So we will take Thomas Besson. Thomas Besson, can you please open your mic, Thomas?
Sure. Thank you very much. I just have two quick questions, because I think there are others who are trying to ask questions as well. The first one is, on the sales to partners, and the additions notably of the Geely partnerships in South America, can you remind us the contribution of this to your operating profits, and notably these new partnerships, have they effectively boost your numbers or not?
The second, you have not said much about the performance of Renault in international markets. Of course, international markets have been very adverse in Q3. Can you just make a few comments on this? I do not think it is changing dramatically the picture for your H2. But still it is quite sobering to see that, for the time being at least, we are not seeing much dynamic. Thanks.
Thank you, Thomas.
Okay, Thomas. Well, before maybe handing over to Fabrice about performance of Renault in international markets, sales to partners is, we do not do things at a loss, so it is a positive contribution to our operating margin. It was built into the plan. As Florent just went through a couple of minutes ago, there is a dynamic which is continuing in the coming years. Obviously, it is something where fixed costs are paid by the partner up front, and then we are benefiting from a variable margin. So it is not a minor part, it is an important part. But we ensure, and I would like to remind you of that we design and take the decision of profitability on programs without partner volumes. So it is a pure upside compared to the decisions taken and investments done by Renault Group. So maybe—
This explains as well, Duncan, why the return on capital employed at Renault is so strong. Please compare to our peers. You can look at the cash conversion. We can speak about margin as well in percentage, but at the end of the day, the use of cash is very good and proving to be superior to many of our European and U.S. and Asian peers. Fabrice, on international, maybe you could talk about.
Yes, we can do a little world tour. I would say, in our historical markets, the situation of Renault is quite good. Türkiye, we are improving our sales, and we are outperforming the market despite, since a few months, a market drop. This is what is explaining the Q3 decrease. Nevertheless, Renault is remaining the first brand in Türkiye with better share of market. South America, we have a different situation. Argentina, we are monitoring our profitability. That is why we are down in terms of volumes, taking into account the situation. On Brazil, we are improving, thanks to Kardian and Boreal.
We will have, in South America, two very important launches in the coming months, in the LCV part. First, with Niagara for Argentina and Brazil, and second with the renewal of Master, which is also a big chunk in South America. Korea is suffering. But we have, I would say, a quite small exposure there. India is ramping up with the arrival successively of the new models and the new engines, which are very important to make the electric transition also in India. Diverse situation, but all in all, a very, I would say, good risk management there.
Thank you, Fabrice.
Thank you.
Thank you, Thomas. The next question will come from Stuart Pearson from Oxcap Analytics. Good morning, Stuart.
Yeah, good morning, guys. Thank you for taking the question.
You are welcome.
Apologies if I come back to something you have already covered. I have been multitasking this morning. I just wanted to come back quickly, actually, on Thomas' first set of questions on a little bit around the pricing environment and the Chinese push into Q4. I am not sure we totally covered it. Obviously, in your bridge for the revenue side, it is a positive number, which is obviously, as you call out, helped by FX and BEV, et c. So I just wonder, when you think about the H2 price mix enrichment component, I think it was - 425 basis points in H1, just how that might look versus that number in H2. Are you having to work much harder on cost to make this guidance, I presume? Is that number getting worse?
I think Stellantis is saying this week that pricing, at least sequentially, wasn't any worse in Q3, but they're still down 300 basis points year-on-year. Just interested to get a little bit more color on pricing, especially the Chinese pushing a lot of imported volume into Europe ahead of any quotas. So, keen to dive into that. Then just quickly on one specific model, the Clio. Obviously updated model around this time last year, I think. Seems to be fading a little bit. I don't know if that's sort of cannibalization into Renault 5, Renault 4, whether that's just a capacity allocation issue on your side or just what's going on with that model would be helpful. Thank you.
Okay. The first question was Chinese competition pricing outlook going forward. So you can see the price was + 1.1 points. You didn't miss much of the call, so you're efficiently multitasking. We did have version mix in that, which is benefiting from as well, and we didn't have negative FX, as you pointed out. But we did have negative FX in some markets, and prices were raised to compensate that. Obviously, there are 20 points more than average market exposure to retail markets where we're playing there, and we're playing it in a safe way, as Fabrice discussed. Not heavily discounting and not suffering with our residual values being significantly higher than competitors as well. Are things sequentially getting worse?
Well, I think other people have called out that they do expect positive pricing in 2027. I think this maybe goes hand in hand with input costs rising. If you have raw materials going up period after period, you have memory increasing, and you have electronic components, that maybe our competitors will follow us in some of the pricing actions that are being taken, even as of right now. In terms of expectations, though, for H2, it's not something we were counting on as a positive. As you said, we had 425 basis points in H1. I expect some similar number of H2, and that was what we took into account in our guidance. The question on Clio cannibalizing with R5, or was it production? Fabrice, do you want to—
No. Regarding Clio, we are focusing with Clio on retail because this is where we want to make the difference. If you take a comparison year-on-year between Clio VI and Clio V, we are improving our level of orders on retail for Clio by 20%. It means there is no cannibalization at all with R5. What is happening on the Clio is that now, with this commercial policy focus on value, we are not selling so many cars on fleets, waiting for a better competitiveness in terms of hybrid. This is why could explain sometimes some differences, but once again, we don't need that. We prefer to push, to sell the natural demand we have on Clio retail hybrid, which is a highly demanded product.
Thanks. Maybe just to complete my comment, Stuart, because you talked about pricing, but also about competition. We are not expecting a Q4 in volumes massively up. So stable to slightly positive overall, and that is something that also was taken into account in what we are looking for H2.
Okay. All right. Thank you. Best of luck for the future, Duncan. I think the fact that we are even here talking about Renault doing 3% auto margins, let us say in H2, when Audi just reported zero and Mercedes will do zero in Q4, it is a long way from where we were talking about when you first started in IR, Duncan. So good luck for whatever comes next.
Thank you, Stuart.
Thank you, Stuart. Have a good day. We know, by the way, that it is not sunny in London. The next question will come from Henning Cosman. Henning, can you please unmute your phone?
Hi, can you hear me?
Very well.
Yeah, we can, Henning.
Thank you.
Okay. Super. Good morning, everybody. First question. Duncan, excuse my ignorance, but if you could just explain again this destocking effect in the others bucket from the RRG. How is that different from the destocking effect that is in volume? Do you treat that separately? So basically, the RRG is that inventory reduction within group inventories, whereas the volume destocking effect in the volume bucket is destocking on the independent dealers. Is that how we read it? Ultimately, it affects the bridge in the same way. If you could just explain that again, please.
The second question is, frankly, I am a bit surprised about your comments that you said for you the shift had been bigger from Q1- Q2 than from Q2- Q3, just because it is so much more different from what the others seem to be seeing. I am surprised, actually, it has not come up. Just with respect to your margin guidance, the around 5.5%. I believe in the H1 call you said, you see yourself at the bottom end of a 5.3%-5.7%. So if you could just reiterate that. Is that still the case? Is it around 5.5%? Is it really more 5.3%, which is the bottom end of that range? If that is the case, how, right? Which again goes back to not seeing as much of a shift as all your competitors. Inflation inevitably is higher.
You are selling more EVs, I think, than you expected. Dacia, I think, is certainly a bit lower than you expected at the beginning of the year. Yet you managed to retain that bottom end of the guidance range, at least, I suppose so. Could you just talk about then the offset, perhaps? Surely then you must have more success in saving more cost, having better execution to offset a little bit the things that have been slipping in the course of the year. If we could just touch on that one more time. Thank you very much.
Yes, Henning. Let us have a go, because it was very much the theme of Thomas's question right at the beginning. First of all, to answer you on destocking, I think you described it perfectly. Yes, we measure in our volume impact all of the invoices we make to the dealer network, be it independent or our wholly owned dealer network. Then in the last bucket at the end, we adjust where we have not actually externally revenued that out of the group, in the case of a stock increase at RRG. So that is how that fits into the walk.
I just point out that it was a low point in June, so it is more of a normalization of the level of stock at RRG. It is not an overstocking situation. That is how it happens in the walk down. If I haven't explained it clearly enough, I'm sure Florent can have a second go at it, because he's much better than me. My comment on the more of a change in the environment for Q1- Q2. Obviously, as we saw rising fuel prices, rising raw materials at the same time, rising inflation. I think maybe it's just because we're very focused on the retail market. But it was around a quarter of retail customers walking in asking for an EV in Q1, and it doubled in Q2 for some markets.
That has continued. So we've been able to adjust our production and supply to meet that demand. In terms of raw materials and input costs, when we talked at the half-year stage, even probably when we talked in February, we were talking about EUR 600 million impact. EUR 200 million was the first half, EUR 400 million between raw materials and input costs in the second, and we're still seeing that in line. So yes, volumes might have been reduced slightly where we are not overstocking, where we are adjusting capacity in line with demand.
So yes, we have had to up the execution on variable cost performance and fixed cost performance. But I think, as my opening comments on Q3 were, things pretty much ran to plan. This is not a huge surprising quarter for us. So the guidance we gave in July, to be complete on your list of questions, was around 5.5%. As you say, the range means 5.3%- 5.7%, and we are more in the bottom half of it than the top. Did I miss—
Very good. Thank you, Duncan. All the best to you.
Cheers, Henning.
Thank you, Henning. So have a good day. This was our last question, so we will soon close the call. But before we let you go, on behalf of the group, Duncan, I would like to thank you for nearly three decades at the service of Renault Group. We all know around the table what it takes to succeed in the auto industry, especially in the mass market.
So congratulations for that. Thank you, and we wish you all the very best in your new challenges, which will come very shortly. So all the best. To everyone, we will meet you today during a roadshow in Paris and virtually, and if not, let us speak soon. We will be around in the last months of the year to meet you all in the main financial places. Thank you and have a good day.
Thank you, everyone. Thanks to everyone on the call today.
Thank you, Duncan.