Renault’s Ampere IPO is coming in 2024: Reasons to avoid the stock

Renault (FRA: RNL), the giant French automaker, has announced plans to take Ampere, its electric vehicle company public in 2024, in what will be the closest-watched IPO of the year. The company believes that the IPO will value the electric vehicle unit between 8 billion and 10 billion euros

That is a huge number considering that Renault itself is worth about 10.2 billion euros. Wall Street analysts have valued the company at between 3 billion and 4 billion euros. This makes it a modest company in the automotive industry.

Renault hopes that Ampere will be the premier manufacturer of electric vehicles in Europe. Its strategy is to make affordable vehicles that Renault is well-known for. Ampere received a 600 million euros from Nissan, a company that has a close relationship with Renault.

Ampere’s IPO will be watched closely by other global automakers like Volkswagen, Ford, and General Motors. For one, these companies have made big plans to move into the EV industry with mixed success.

Therefore, if the IPO is successful, it means that these other companies will also spin off their EV units. 

However, there are several reasons why investors should avoid the Ampere stock. First, history suggests that these spin-offs rarely work. A good example of this is Polestar, which was spun-off from Volvo, the company owned by Geely.

Polestar stock price has plunged by more than 76% after going public in 2022. This happened as the company went through supply issues and weak demand. In the most recent quarter, the company decided to lower its total guidance.

Polestar vs Geely stock chart

The other reason to avoid Ampere stock is the competitive state of the EV industry. For a long time, there were a limited number of automakers, including Toyota, Renault, Mercedes, and General Motors.

Now, all these companies are building EVs. In addition to this, there are hundreds of pure-play EV companies like Fisker, BYD, Li Auto, Nio, Lucid, and Rivian. This means that the world will soon be oversaturated with EVs, leading to more discounts. 

In a recent letter to the White House, US dealers warned that the supply of EVs was growing at a faster pace than demand. They also said that they were staying with unsold EVs for over 100 days, more than double their ICE vehicles.

In addition, there are concerns about the future demand for electric vehicles because of the challenges. There is the challenge of high costs of buying EVs vs ICE vehicles, range anxiety, and the limited charging infrastructure.

Therefore, some analysts believe that investing in Renault is a better alternative that Ampere since ICE vehicles are here to stay. Further, many giant automakers are seeing their EV sales disappoint. General Motors announced a giant buyback policy as it shifts away from EVs. Similarly, Ford recently canceled its battery manufacturing plant in Michigan.