Renault said to be considering exiting Russian AvtoVaz joint venture

Renault said to be considering exiting Russian AvtoVaz joint venture
Renault said to be considering exiting #Russia AvtoVaz joint venture
By bne IntelliNews March 31, 2022

French carmaker Renault is considering transferring ownership of its majority-held joint venture with Russia’s largest carmaker AvtoVaz to a local investor as a way to exit the country, Bloomberg reported, citing unnamed sources.

As analysed by bne IntelliNews, in the worst-case scenario of Renault having to pull out its capital from the joint venture with AvtoVaz, this would cause great harm to the Russian car-making industry.

Last week Renault, a Western carmaker with the largest Russian exposure, caved in to pressure to curtail its presence in Russia amid the latter's military invasion of Ukraine and said it would suspend operations at its plant in Moscow and would “assess the options” on its majority stake in AvtoVaz.

Reportedly, Renault is now considering the ownership transfer, as it would help free the carmaker from legal responsibilities to AvtoVaz and its 45,000 employees. It is not clear how Renault’s wholly owned Moscow factory would be included in the transfer.

The sources told Bloomberg that Renault would be unable to make the transfer of its 68% stake in AvtoVaz to the other shareholder, Rostec state technology agency, as the latter is under sanctions.

“Although Renault is exposed to Russia because of its large operations there, we are more concerned about its capacity to maintain sound performance in light of likely supply disruptions, higher input costs and reliance on the European auto market, which could be hurt by the Russia-Ukraine conflict,” Standard & Poor’s wrote while setting a Negative outlook on the company’s ratings.

In the meantime, a separate report by RBC business portal claimed that due to shortages of imported components most Russian car manufacture has effectively stalled. AvtoVaz will release all of its staff on vacation from April 4 to 24, and after that will switch to a four-day working week. The carmaker is also scrambling to set up an emergency assembly of a Lada model that would be self-sufficient.

Industry sources told RBC that this would be possible for Lada Granta, Lada Largus and Niva Legend models, but with manual transmission only and without ABS, ESP and airbags.

The AvtoVAZ-Renault-Nissan-Mitsubishi alliance controlled 35.5% of the car market in Russia at the beginning of 2022. Renault-Nissan is the largest shareholder in AvtoVaz, together with Russian state technology agency Rostec. Billions of euros of equity injections from foreign carmakers allowed AvtoVaz to turn around in 2018.

Renault derives 8% of its core earnings from Russia, mainly through its 68% stake in AvtoVaz, according to Reuters citing Citibank numbers. Renault's board of directors considered different scenarios but decided for the time being to maintain a presence in Russia, Reuters reported, citing unnamed sources close to the matter.