Renault hands Lada maker to Russia with option to take back

Renault SA agreed to transfer its €2.2bn (roughly R37,453,660,000) Russian business to state entities for a symbolic sum in what amounts to a nationalisation triggered by the war in Ukraine.

The French carmaker’s majority stake in carmaker AvtoVaz – maker of the top-selling Lada brand – will go to a state-run automobile research institute known as NAMI, while the Moscow City government will take over an assembly plant near the Russian capital, according to a statement on Monday.  

The automaker has the option to buy back its stake in AvtoVaz for the next six years. While a spokesperson declined to give the sale price for the assets – previously reported as one rouble 925c) – she confirmed the sum is symbolic.

The agreement marks the end of an era for Renault in Russia, where the automaker owned 68% of AvtoVaz, which runs a car plant on the banks of the Volga River dating back to Soviet times. Renault’s roots in the country, which grew to become its second-biggest market, stem from a $1bn deal sealed in 2007 between former leader Carlos Ghosn and a top ally of Russian President Vladimir Putin.

Renault fell as much 1.6% in early trading in Paris. 

Withdrawal will carry financial pain. Renault cut its outlook in March for this year both for profit margin and free cash flow due to the risks posed by the war on its Russian operations. On Monday, the company confirmed the lowered outlook and a writedown in the first-half for the value of the Russian business, which was €2.2bn at the end of last year.

“We are making a responsible choice toward our 45,000 employees in Russia while preserving the group’s performance and our ability to return to the country in the future,” said CEO Luca de Meo saidt.

Moscow mayor Sergei Sobjanin said Renault’s plant near the city will start to produce Moskvitch cars, a Soviet-era model, according to his blog.

AvtoVaz’s Togliatti plant will continue to make Ladas, Russia’s Industry and Trade Ministry said in its Telegram account. The Central Research and Development Automobile and Engine Institute, or NAMI, reports to the ministry.

The Russia debacle comes at a bad time for the carmaker, which was is struggling to turn around following the crisis stemming from Ghosn’s 2018 arrest in Japan and the pandemic. 

The French carmaker came under strong pressure from investors during the first weeks of the war in Ukraine as the most exposed vehicle manufacturer to Russia. It was also called out by Ukrainian President Volodymyr Zelenskyy for supporting Putin’s “war machine” by delaying a pullout. 

Operational hole

Renault had 45,000 staff in Russia so the transfer will leave a big hole in the automaker’s operations. The Lada was part of de Meo’s strategy for affordable passenger cars along with the Dacia brand.

The CEO is now considering a structural overhaul of Renault by hiving off electric-vehicle and combustion-engine entities.

The other partner in the AvtoVaz venture is Rostec State Corp, a Russian government-owned defence conglomerate headed by Sergey Chemezov, a close Putin ally who is under sanctions.

In the months since the start of the war, Renault and other foreign manufacturers have halted plants, blaming their inability to get crucial imported parts needed for production.  

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