1. Home
  2. carpet
  3. Why Renault is taking a big risk in the war between Russia and Ukraine

Why Renault is taking a big risk in the war between Russia and Ukraine

The euphoria of good results did not last long. Renault wins on the stock market. The automaker lost more than 10% in early trading Thursday, February 24, hours after Russian President Vladimir Putin declared war on Ukraine. Very present in Russia through its Lada brand, the group is one of the main French manufacturers exposed to this international crisis. On the morning of February 24, Renault remained discreet about the slippage of the situation in Eastern Europe.

"Of course, we are following this very closely because we have a lot of interest in the evolution of the Russian market", simply commented the group's general manager, Luca de Meo, a few days earlier, to the presentation of annual results. For its part, the European Commission is already promising massive sanctions to undermine the Russian economy.

YOURINDICES

source

0.82908 -0.45

April 14, 2022

Pound sterling (GBP) - daily

£GBP/€

6.932 +0.55

April 14, 2022

Chinese Yuan (CNY) - Daily

¥ CNY/€

111.7 +2.68

Why Renault is risking big in the war between Russia and Ukraine

April 14, 2022

Brent oil futures contract close to maturity

$USD/barrel

All the clues

Russia, Renault's second largest market

Russia is one of Renault's vital organs. It is the group's second largest market, behind France. In 2021, the manufacturer sold 482,264 vehicles in Russia, or 18% of its global volumes. With a market share of 28.8% in the country, Renault also dominates the other manufacturers, thanks to the Lada brand. Avtovaz, the company that produces and markets Lada vehicles, generated 2.8 billion euros in sales, out of total revenues of 46.2 billion euros for Renault in 2021.

This success required colossal investments to modernize the Russian production system and renew the range. Renault has committed more than 1 billion euros to turn Avtovaz around. The Russian state, eager for technology transfers, closely monitors this joint venture. It is 68% owned by Renault and 32% by the public company Rostec, better known for its holdings in the military sector.

Supply risks

What are the risks for Renault? In front of investors on February 18, Luca de Meo did not want to panic. “Our Avtovaz business sells 90% in the Russian market and only 10% in other countries, and these are mainly in countries around Russia,” he explained during a question and answer session. “Lada vehicles are very localized in their content,” insisted the general manager.

Despite the reassuring speech of Luca de Meo, questions arise about the supply. As a reminder, Renault has three large production sites in the country in Izhevsk, Moscow and Togliatti. According to the Financial Times, the Moscow site is 40% dependent on imported parts, while the other two are exposed to around 20%.

Before the diplomatic crisis, the automotive industry was already struggling to supply itself with semiconductors. The sanctions promised by the West could further complicate the situation. The United States has already threatened Russia with restricting its semiconductor shipments. “We are studying the possibilities of finding alternatives in the event of sanctions”, reacted on February 22 Nicolas Maure, general manager of Avtovaz, quoted by Reuters. It remains difficult to estimate the consequences of the threats from the White House. U.S. chipmakers themselves depend on Russia for palladium supplies…

Renault says it is "secure" on the financial aspect

Beyond the industrial risks, some investors are wondering about the financial aspect of the sanctions. On February 24, the European Commission threatened to “terminate the access of Russian banks to European financial markets”. In the results of the group, the financial director Clotilde Delbos relativized the risks on this point: “The debt of our companies in Russia is local, as well as their financing, without support from the Renault group. They are entirely autonomous even if they are highly indebted, especially Avtovaz. Everything is local, so in our opinion it is very secure. »

In 2018, Renault had already been forced to leave Iran with the tightening of American sanctions, but it was its competitor, ex-PSA, which was the most exposed of the two French manufacturers. The opposite is the case today with Russia: Stellantis describes a "marginal" activity in Russia, which has a single factory in Kaluga and employs 2,000 people in the country. On the equipment supplier side, Plastic Omnium speaks of a “moderate” risk: the group generates less than 1% of its turnover in Russia, with three factories out of 137 around the world. Renault, for its part, will have to face this major geopolitical crisis while continuing to carry out its heavy restructuring.

Selectedfor you

When the salary of Carlos Tavares, boss of Stellantis, puts Emmanuel Macron and Marine Le Pen in agreement

Stellantis adds Qualcomm to its list of partners in connected vehicles

Stellantis shareholders issue symbolic sanction vote to Carlos Tavares