Auto Industry

Marriage of convenience

Why has Renault inked a fourth joint venture in China?


Fourth time lucky: Renault to drive China business with EV venture

Renault often traces its links with China back to the 1920s, when it hired then student Deng Xiaoping as a fitter in a factory in a Parisian suburb. But it wasn’t until 2013, or three decades after its German peer Volkswagen built the first foreign-branded car in Shanghai, that the French automaker started making vehicles in the country. Renault’s relatively pedestrian entry into the Middle Kingdom also explains its recent tie-up with a local partner to ramp up electric vehicle (EV) production – an effort considered by industry insiders as more last-minute than pre-emptive.

On July 17 Renault announced it would take a 50% stake in the new energy vehicle unit of Jiangling Motors for Rmb1 billion ($144 million).

The move technically turned the Jiangxi-based factory, founded in 2015, into Renault’s fourth joint venture in the world’s largest car market. Its predecessors include a partnership with Dongfeng Motor in 2013, another with Brilliance China Automotive in 2017, and an EV initiative under an alliance with Nissan two years ago known as eGT New Energy Automotive.

Renault’s desire to deepen its exposure to China’s EV market is understandable, given the segment is bucking the overall downtrend in car sales. Despite the removal of purchase subsidies, sales of new energy vehicles (NEVs), which include battery-powered cars and plug-ins that run on hybrid gasoline-electric engines, are still expected to grow 27% on the year to a record 1.6 million units in 2019. By contrast sales in the overall car market will slip another 5%, according to the China Association of Automobile Manufacturers.

A more pressing concern is the new government mandate kicking in this year, which requires each car company to have at least 10% of its annual sales, and 12% next year, coming from NEVs. The policy is backed by a tradable carbon credit scheme for those that fail to meet the target. Having a negative balance of carbon credits means that a manufacturer will have to buy extra quota from those peers with excess credits to offset its own deficits – or risk being denied permits to sell newer gas-guzzler models as well as face production halts on existing combustion-engine cars. (Credits get allocated depending on the driving range, energy efficiency and fuel cell power of the NEV vehicles that are sold.)

The pressure has ushered in a flurry of deals in the industry since 2017, including the teaming up of Volkswagen and Jianghuai, Ford and Zotye, as well as BMW and Great Wall Motor.

Last year Renault sold 217,000 vehicles in China, of which about 50,000 were passenger cars. However, none were classified as NEVs. The implication is that Renault’s carbon credit balance was very deeply in the red. Its subsidiary Dongfeng Renault accumulated minus 17,689 points, and another, Renault Brilliance Jinbei Automotive, got minus 67,360 points, according to Beijing Business Today. The huge deficit begs the question: can Renault chalk up enough credits to tilt the balance, even if it manages to roll out the KZE, its made-for-China all-electric car, this year?

Its new stake in Jiangling Motors should help, considering it is one of the 12 NEV original equipment manufacturers (OEM) with licences from both the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology – a rare feat. Last year it delivered around 50,000 NEVs, and is planning to build a facility with annual production capacity of 300,000 units.

But Jiangling Motors is not necessarily a one-way bet for Renault, says Time Weekly, a Guangzhou-based publication, citing the company’s deteriorating sales performance. Its overall shipments in the first three months dropped 67% on a quarterly basis to 9,516 units, while the deliveries of its most popular model (the E200L) in June were not even half the figure sold in January. In fact, it slipped out of the top 10 league table for new-energy passenger car sales in June, according to data from the China Passenger Car Association.

The decline reflects the fierce competition in a market that is seeing more and more players joining the fray. In fact, that very overcrowdedness has deterred investments from venture capitalists, whose new funds committed to the sector plunged nearly 90% on the year to $783 million as of June 14, according to data provider PitchBook.

Still, the bleaker data hasn’t stopped yet another new player from entering China’s crowded auto industry. Step forward the lesser known Saleen, which recently splashed Rmb60 million to announce its arrival by holding a gala at the National Stadium in Beijing. (The star-studded performance featured actor Jason Statham and domestic pop icon Kris Wu – see WiC432 for more on why brands are desperate to associate with him – reminded some people of the extravagant marketing events held by the now-defunct LeEco.)

Founded in 1983 in California, Saleen made headlines with a car model that won four motorsports championships. With a state-backed local joint venture partner, the US company is building two production plants in the city of Rugao in Jiangsu province. One will produce 50,000 pure electric vehicles and 20,000 super cars annually, while the other targets to deliver another 150,000 cars a year, China Daily reported.

Commanding a total investment of Rmb17.8 billion, Saleen’s move into China is being aligned by its backers with Jiangsu’s current five-year plan. While the local government has high hopes for the sports car brand, market observers are sceptical, not least because it has entrusted its EV production to China Youngman Automobile Group. This EV maker is notorious for having botched numerous local government-backed projects, and lately, for a backfiring media event involving a supposedly water-powered hydrogen car (see WiC456). Its role as contractor on the new project marks yet another instance of Youngman’s capacity to ink surprising new deals.

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