M&A

Untying the knot

Renault calls it quits on combustion vehicle joint venture in China

Renault-w

The Captur: no longer in China

The so-called seven-year itch gets the blame for plenty of divorces. But the dalliance between French automaker Renault and China’s Dongfeng Motors, which started in 2013, ended last week not because of infidelity but because they weren’t productive enough as a pairing.

On April 14 Renault announced that it was transferring its 50% interest in the joint venture, known as Dongfeng Renault Automotive Company (DRAC), to its Chinese partner. The deal means that Dongfeng takes full control of the JV’s plant in Wuhan, which will stop making Renault-branded gas-guzzlers: namely the Captur, the Kadjar and the Koleos.

The split does not come as a surprise. Analysts have cited the lockdown in Wuhan as paralysing the plant. But there were challenges long before the coronavirus, which dragged DRAC’s sales in the first quarter down 89% on the year to just 633 units. Sales of cars with the Renault brand had fallen from a peak of about 72,ooo units in 2017 to just 18,607 last year – well below the plant’s annual capacity. The business reported an operating loss of over Rmb1.5 billion ($212 million) for the same period.

The dissolution of the partnership is also linked to wider problems. Renault’s net profits plunged 99% on the year to just €19 million ($21 million) in 2019, as contributions from its Japanese ally Nissan dived 85% following the ousting and arrest of former chairman Carlos Ghosn.

The reshuffling of the Renault-Nissan-Mitsubishi alliance in January was another impetus for change. The gameplan calls for each partner to take the lead in its own sphere of influence: Nissan will focus on China, Mitsubishi on Southeast Asia, and Renault on Europe.

China made up just 0.2% of Renault’s total revenues last year – a negligible presence that resulted from its late entrance into the world’s largest car market. The timing of its eventual arrival was unfortunate too: within two years of its manufacturing facility in Wuhan going into operation, car sales in China began to post declines due to cutbacks in purchase subsidies. Competition has also increased, with a litany of new offerings from domestic players.

“With just three vehicles in its main line-up, Renault was not able to break through against so many competitors,” Abby Chun Tu, analyst at IHS Markit, told Autonews, noting that stronger players such as Volkswagen have shown more readiness to adjust to a fast-changing market and channel resources into creating more localised brands for Chinese consumers.

Francois Provost, chairman of Renault’s China division, emphasised that the company is not abandoning the Chinese market altogether. Rather, it will refocus on electric and light commercial vehicles, a shift supported by Renault’s three other joint ventures.

At present it sells just one all-electric model in China, the K-EZ, a budget crossover launched under eGT New Energy Automotive, a partnership with Nissan and Dongfeng (Renault has a 25% stake). It is also planning to develop four more models with Jiangling Motors, a Jiangxi-based partner, by 2022. That tie-up, established last July with an investment of Rmb1 billion, is supposed to reach production capacity of 600,000 vehicles annually (see WiC462).

By 2023 Renault will further extend the line-up of its light-commercial vehicles too, with a total of five core models under the marque Jinbei (offered in collaboration with its Shenyang-based partner Brilliance Auto). Last year Jinbei sold 162,000 vehicles, or about 28% of China’s medium-sized van segment, according to Sohu, a news outlet. Renault is planning to adapt its Jinbei production base for exports to Latin America too.

“Renault is serious about staying in the Chinese market,” Wang Cun, vice director of the China Automobile Dealers Association, told Caixin, a business magazine. “However, it has made a strategic adjustment in light of fierce market competition, lack of consumer recognition for its products and serious operating losses, just as the broader car market is contracting.”


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