Will geopolitics thwart Renault’s growth plans? The French automotive group is probably one of the companies most watched by investors over the repercussions of Vladimir Putin’s decisions to recognize the independence of Donbass (Eastern Ukraine) and to dispatch military troops there. The title fell by nearly 3.76% on Tuesday the day following the Russian president’s announcements, following having already fallen by 3.96% yesterday. Little dependent on the Russian market, Stellantis, for example, saw its price increase slightly by 0.17% on Tuesday.
The Renault-Nissan Alliance controls a third of the Russian market
Because since the absorption of Avtovaz in 2019 (100% of the capital), eleven following its first equity investment, Renault is one of the leading players in the Russian automotive market. Between its subsidiary, its own brand and its ally Nissan, the Boulogne-Billancourt firm controls no less than a third of the market share of what remains the second largest automotive market in Europe, following Germany, with 1.7 million cars (a highly volatile market that can rise to more than 2.2 million cars depending on macroeconomic conditions).
Renault has invested heavily in the Russian market… Both in internal resources (logistics, executives, parts, technology, etc.) and hard and fast investments (several billion euros). The rise of Renault in the capital of Avtovaz was a long process of the agreement between Carlos Ghosn, at the time CEO of the group, and Vladimir Poutine who was looking for a partner to relaunch Avtovaz. The ousted CEO liked to say that he had convinced the master of the Kremlin to entrust the fate of Lada to him, rather than to the Daimler group (Mercedes, Smart), promising to respect the Russian identity of the famous brand, as he had done it with Nissan. Today, Avtovaz is 400,000 cars sold, 3 billion euros in turnover, and 250 million euros in operating profit.
A laboratory for emerging countries
For Renault, the Russian market is a real laboratory for its activities in emerging countries, but not only. It was for the Russian market that the group had developed the Arkana, this coupe SUV which has just landed triumphantly in Europe (under another platform). Renault mainly marketed Dacia products under its own brand. But the French group has above all relaunched the Lada brand, the national brand, with a new range. The group has invested several billion euros to modernize the Avtovaz factories and design new models such as the Vesta or the Niva, the famous Russian 4×4. Proof of the popular attachment to Lada, it was Vladimir Putin himself who lifted the veil on the Vesta in October 2015 by parading behind the wheel. And the French group is also preparing to launch three new models there to consolidate its commercial offensive.
Local production is secure, says Renault
But the geopolitical situation worries the markets. Luca de Meo, the general manager of Renault, wanted to be reassuring during the presentation of the financial results. He judged that the activities in Russia would not be impacted thanks to a very high rate of local supply. In other words, in the event of an embargo, the factories will continue to operate. This answer solves the industrial problem, but other questions arise. Several countries have thus threatened to cut Russia off from several international currencies such as the pound or the dollar. The European Union has not yet ruled on the arsenal of sanctions it intends to implement, such as access to the Euro, or to the SWIFT financial transaction system. But, if any of these measures are implemented, it will be difficult for Renault Russia to operate cut off from the international financial system.
Several disaster scenarios
But there is even more catastrophic with an Iranian-type scenario which had forced Renault to withdraw from this market, under penalty of international prosecution. Finally, it is impossible not to envisage reprisals on the Russian side which would consist in expropriating Renault from its Lada subsidiary, considered as an issue of national sovereignty. Between Iran and Russia, geopolitics is starting to cost Renault dearly…
