Renault’s Russian partner Avtovaz says ready to take the wheel at Lada

Employees work at the assembly line of the Lada Izhevsk automobile plant, part of the Avtovaz Group, in Izhevsk, Russia February 22, 2022. — Reuters pic
Employees work at the assembly line of the Lada Izhevsk automobile plant, part of the Avtovaz Group, in Izhevsk, Russia February 22, 2022. — Reuters pic

PARIS, March 24 — Renault’s Russian partner Avtovaz will go it alone to build Lada brand cars without foreign car parts, it said today as Russian authorities consider the future of the carmaker’s Moscow plant after it exits the country.

Shares in the French carmaker were down 2 per cent in early afternoon trade after it became the latest international company to distance itself from Russian partners over the invasion of Ukraine.

The Western carmaker with the greatest exposure to the Russian market said on Wednesday that it was considering taking a €2.2 billion (RM10 billion) non-cash charge in the first half to write off its assets in Russia.

That’s equivalent to a third of its current market value. Investors have wiped 40 per cent off its market cap over the past month.

Renault did not give details on how it would handle a retreat from its second-biggest market, one of more than 400 companies to withdraw, leaving behind assets worth billions of dollars.

But Russia’s Ministry of Industry and Trade said today talks were underway to decide what to do with the carmaker’s Moscow factory, potentially offering one of the first examples of what the government intends to do with Western assets.

The Kremlin has suggested it could nationalise assets of foreign firms that leave the country.

A decision on the factory’s future use was expected by the end of next week.

Meanwhile, Avtovaz, which is controlled by Renault and produces the Lada and Renault car brands, said on Thursday that it would manufacture new models without relying on imported components and would work to rebuild its supply chains. It imports about 20 per cent of its parts and raw materials.

A decade ago, major automakers saw Russia as a promising growth market with potential to be among the world’s 10 largest vehicle-buying nations.

The latest sanctions, and earlier measures imposed after Russia’s 2014 annexation of Crimea, have ended that dream.

A significant part of Renault’s turnaround strategy relied on merging its low-cost brand Dacia and Lada into a single business unit. Lada’s vehicles were to be built using Dacia’s vehicle platform.

Lada was also part of Renault’s cost-cutting plan and its major push into small family cars.

A source close to Renault said its low-cost Dacia brand will remain profitable even without the economies of scale of the Lada brand.

Assessing options

Premium German carmaker Mercedes-Benz this month said it has €2 billion in assets that could be threatened by Russian proposals to nationalise the property of foreign companies that exit the country because of its invasion of Ukraine.

Renault said it would also now assess its options regarding its majority stake in Avtovaz, Russia’s No. 1 carmaker.

“We think this strategic move will shift the attention of investors into the core operations of Renault, which have been largely restructured over the past years,” JP Morgan analysts said in a note.

Credit Suisse analysts said that a Russian exit for Renault would be a better option than a “wait and see” approach, even if it comes at a cost for the company.

The French state, which owns a 15 per cent stake in Renault, did not force the decision to suspend its Moscow operations, a government spokesman said today.

But, according to a source close to the matter, its two representatives at the board backed the position.

Ukrainian President Volodymyr Zelenskiy on Wednesday accused Renault of financing the war which Moscow calls “a special military operation”. The foreign minister later in the day welcomed Renault’s move. — Reuters