AutoBeta(AutoBeta.net)05/16 Report--

On May 16th, French carmaker Renault Group said it had agreed to sell its entire stake in Renault Russia to the Moscow municipal government and its 67.69% stake in AvtoVAZ to NAMI, a Russian government-backed car research and development center. "the agreement gives Renault the option to buy back its stake in AvtoVAZ, which can be exercised at a specific time over the next six years," Renault said.

On March 23, Renault announced that its board of directors had decided to suspend all activities at its Moscow plant indefinitely and was evaluating the options for its stake in its Russian joint venture, Avtovaz. Russian Industry Minister Denis Manturov said Renault would sell its stake in Avtovaz to NAMI for a symbolic 1 ruble, and Renault's Moscow factory would be handed over to Moscow officials. In addition, Renault has made every effort to buy back its shares within 5-6 years.

Russia plays an important role in the Russian market, which is the largest shareholder of AvtoVAZ, Russia's largest carmaker, and has an absolute controlling stake, accounting for 1/3 of Russia's total sales. However, the conflict between Russia and Ukraine and the sanctions imposed by Europe and the United States against Russia dealt a heavy blow to Renault's production and operation in the Russian market, and announced on February 28 that it would stop production at its factory in Moscow. On March 23, it was decided to stop all activities at the factory in Moscow indefinitely.

Affected by the situation in Russia and Ukraine, the performance of Renault Group suffered a heavy blow. Renault reported revenue of 9.7 billion euros ($10.6 billion) in the first quarter of 2022, down 2.7 per cent from a year earlier. Excluding AVTOVAZ and Renault's Russian operations, Renault's revenue was 8.9 billion euros, down 1.1 per cent from a year earlier. Affected by the situation in Russia and Ukraine, the revenue of AVTOVAZ and Renault Russian subsidiaries in the first quarter was 900 million euros, down 15.7% from the same period last year, of which AVTOVAZ's revenue was 527 million euros, down 23.1% from the same period last year.

According to Citibank, 8 per cent of Renault's core profit comes from the Russian market, while Renault shares have fallen 25.5 per cent from $6.68 since the conflict between Russia and Ukraine to $4.98 on March 23, when Renault announced the suspension of factory activities in Moscow. And at one point it fell to $4.63.

Data show that Lada is the largest Russian carmaker and is a brand of AvtoVAZ. French carmaker Renault participated in AvtoVAZ restructuring and became its controlling shareholder in 2004. Renault entered Russia to produce Lada cars and Renault brands. Renault's parts rely more on overseas supply chains than Lada cars, and 40% of its parts come from overseas. Data show that Russia sold 1.667 million cars in 2021, of which 351000 Lada cars were sold, accounting for 21% of Russian car sales and 12% of Renault car sales. Russia has become Renault's second largest car market after France.

Under the influence of the conflict between Russia and Ukraine and sanctions from Europe and the United States, the Russian car market was hit hard, which in turn affected Renault's production and operations in Russia. Renault announced the suspension of production at its plant in Moscow since February 28 and was forced to sell its 68 per cent stake in AvtoVAZ. Data show that Russian car sales fell 43 per cent year-on-year to 294000 from January to April in 2022, Lada fell 50 per cent to 61000, and Renault fell 44 per cent to 25000, of which April sales plunged 84 per cent to 2231.

Joe McCabe, CEO of AutoForecast Solutions consultancy, said, "as Russia faces economic difficulties, even if car companies resume production, they may cut production." The sharp devaluation of the ruble makes it difficult to find a buyer for the car. Earlier, Renault said in a statement that "the company's performance may be hit by its Russian business, so it will lower its profit forecast" and expects an operating profit margin of about 3% in 2022, which was previously expected to be greater than or equal to 4%.

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