Groupe Renault - 2020 Universal Registration Document

107 GROUPE RENAULT I UNIVERSAL REGISTRATION DOCUMENT 2020 01 INTERNAL CONTROL AND RISK MANAGEMENT GROUPE RENAULT GROUPE RENAULT: A COMPANY THAT ACTS RESPONSIBLY CORPORATE GOVERNANCE FINANCIAL STATEMENTS RENAULT AND ITS SHAREHOLDERS ANNUAL GENERAL MEETING OF RENAULT ON APRIL 23, 2021 ADDITIONAL INFORMATION continual increases in the cost of vehicles resulting from more P stringent regulations ( e.g. Euro 7 regulations - see section 1.6.1), the accounting of which through corrective changes in sale prices could prove excessively difficult, thus weakening the economic balance and the future of certain products; the specific and strong ambition of the Group with respect to P electric vehicles (see sections 1.1.3.1 “Renault Z.E.: a pioneer and expert on the electric market, Renault is beginning its product offensive in electric cars”, and 1.4.1 “Research into electric vehicles (EVs)”), in the context of intense, complex industrial and market dynamics with uncertain timings, in particular conditioned by the development of ecosystems (recharging, battery recycling), and regional regulations (CAFE for example, in Europe – see section 1.6.1), and increasingly skewed by aid policies; the current transition of the powertrain offer, in terms of P technologies (gasoline, diesel, electrical hybridization of combustion engines, electrical) and mix. In particular, the choice of hybridization technology, which is particularly sensitive to costs and offers differentiated customer and CO 2 performances, could turn out to be imperfectly adapted or paced, depending on the products and markets, thus potentially going against the overall technological and economic optimization defined by the Group for its CAFE trajectory. Should the reference assumptions used in the Group's product development decisions be strongly called into question (declining markets, aid policies, segments or volumes, higher investment or unit costs), the Group may have to recognize impairment on fixed assets (investment and capitalized development expenses, depreciated over the life of the vehicle) or book a provision to cover the contractual indemnities to be paid, if any, due to the failure to meet a minimum purchase volume. Risk management The definition of the Group’s future products is based on customer studies and analyses of automotive competitors, so that market expectations and developments and industry trends can be identified. It is also increasingly informed, on a global scale, by anticipatory technology watch by all of the Group’s development stakeholders, of the automotive industry and beyond. The development of new models or components is decided on the basis of this work and an evaluation of the anticipated profitability, calculated over the projected life cycle. The new brand organization announced on September 3, 2020 should make it possible to better focus needs on customers and brands while controlling product diversity. From a general perspective, to ensure the robustness of the product plan and keep risks under control, the Group strives to: maximize the distribution of the same model in different markets, P which reduces its exposure to possible fluctuations in one of these markets; the risk of dependency on a single market, segment or customer type; offer a varied, balanced Product portfolio that meets customer P expectations in different segments and markets, so as to reduce offer a diversified and adaptable engine portfolio (ICE, electrified, P electric, etc .) to meet customer expectations in different markets and enable potential changes in the engine mix to be supported; develop, with its Alliance partners, a limited number of P standardized technical platforms ( e.g. CMF-EV) to maximize economies of scale for component volumes and costs and facilitate their reuse from one region to another; control the robustness of main product development milestones P so as to secure the market launch schedule of new products in particular by strengthening governance through the increased involvement of top management. Inadequate innovation risk in relation to market expectations - high risk with impact > probability Groupe Renault operates in markets where requirements are increasing in many areas: regulatory ( e.g. emissions and CO 2 /Climate), market trends and customer expectations ( e.g. connected services). These requirements make it necessary to further develop technical innovations, mainly in the fields of powertrains, and electronics and software, with substantial investments reflecting long development times before the return on investment (see details of the innovations in chapter 1.4.1 “ The car of the future ” of this Document). At the same time, Groupe Renault intends to reduce its R&D spending from around 10% of revenue currently to less than 8% in 2015 in order to preserve profitability. This dual necessity increases the risk weighing on the choices made about innovations and the chances of seeing those innovations match real expectations and therefore generate returns on investment. Risk management Groupe Renault has reviewed the definition of its entire product and technology development portfolio under the impetus of its new CEO since July 2020. It was also decided to review the organization from the start of 2021, with the establishment of four Business Units in charge of each of the Group’s four brands in order to ensure that it matches consumer expectations as closely as possible. These brands are able to make the most relevant choices and trade-offs in order to strengthen their specific identities and can rely on the expertise of the central business lines and the bodies and technologies developed at the Alliance level or with partners ( e.g. Google). The group can thus develop products that will offer all types of engines (gasoline, diesel, electric and electrified, LPG, hydrogen), increased connectivity for its vehicles and the driving aids expected by its customers. For example, at the end of 2020, the company launched a major innovation on the hybridization market with the E-TECH engines, which, in addition to the electric range, will make it possible to meet CAFE regulatory requirements. In addition, the MEGANE eVision will be the first consumer vehicle to integrate the Google automotive platform.