Renault is between the hammer and the anvil: what’s going on with the Russian business

Renault’s partnership with Rostec State, a Russian government-owned defense conglomerate, leaves the carmaker in deep trouble.

Volkswagen, BMW and Toyota have idle factories in Russia and have suspended deliveries to the country as part of a larger withdrawal from global corporate giants. The only carmaker with the most to lose, Renault, has remained silent.

The French carmaker has lost about a quarter of its market value following Russia’s invasion of Ukraine and the ensuing economic sanctions.

Russia is Renault’s second largest market and is paying a high price for a $ 1 billion deal reached in 2007 with a top ally of Russian President Vladimir Putin.

Renault’s majority control of AvtoVAZ, the Soviet-era Lada manufacturer, and Russia’s dependence on about 12% of its revenue are now a matter of interest to investors.

Cutting ties with business would be costly, and the prospect of a wider economic crisis in Europe risks derailing its already weak recovery efforts.

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Russia accounted for about 5 billion euros in Renault’s revenue last year, and the operating profit of about 315 million euros could be in jeopardy, according to Bloomberg Intelligence. Renault shares have fallen since last week, reaching their lowest level since November 2020.

Renault is not without problems

As a wave of companies around the world withdraw and unload assets in Russia, Renault and the French government, its strongest shareholder, have kept AvtoVAZ. So did the company’s other partner, Rostec State, a Russian-owned defense conglomerate run by Sergei Chemezov, a close ally of Putin.

Renault’s incursion into Russia a decade and a half ago was decided at the highest political levels, and any exit would be politically difficult. If the company resists, it may have difficulty raising money from a business that has raised more than $ 2 billion over the years.

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In 2007, Putin issued Renault’s initial agreement for a 25% stake in AvtoVAZ under former leader Carlos Ghosn. The agreement was backed by France and led by Chemezov. CEO Rostec’s close ties to Putin date back to living in the same apartment complex in Dresden, Germany in the 1980s, when the future president worked as a KGB officer.

“When we decided to move to Russia and make this alliance with AvtoVAZ, everything was fine,” Ghosn said in an interview with Bloomberg TV. “It made a lot of sense.”

Renault has renovated its huge Togliatti factory on the banks of the Volga River and redesigned the cars to try to reverse the perception of local consumers about the workmanship and bad style.

“Renault’s recovery plan is based on a recovery in the European car market,” said Houchois. “The longer the crisis continues, the greater the likelihood of a recession in Europe.”

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