Renault’s Russian options range from bad to ugly

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Employees work at the assembly line of the LADA Izhevsk automobile plant, part of the Avtovaz Group, in Izhevsk, Russia, February 22, 2022. REUTERS/Gleb Stolyarov

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LONDON, March 14 (Reuters Breakingviews) - Renault (RENA.PA) is hoping for the best in Russia. Jean-Dominique Senard, the French carmaker’s chairman, said last week that war in Ukraine would not threaten the company’s recovery. Investors who have wiped 40% off its share price in less than a month appear to disagree.

Renault is the largest maker and seller of cars in Russia, with close to 30% of the market. It owns two-thirds of Avtovaz, the maker of Lada cars, and operates its two plants. The company also makes cars under its own brands in a Moscow factory.

However, the loss of 4 billion euros of market value may look an overreaction. Avtovaz brought in just 6% of the group’s 46 billion euros of revenue last year, and is valued at 3 billion euros in Renault’s balance sheet.

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Nevertheless, Renault has no good options in Russia. The company shut its operations there after President Vladimir Putin’s invasion of Ukraine last month. Trucks carrying crucial semiconductors couldn’t reach the factories. The Avtovaz plants, which use fewer imported components, may reopen this week.

With 40,000 mostly Russian employees, Renault cannot just shut up shop and leave. The Russian government is also threatening to take over companies more than 25% owned by “foreigners from unfriendly states” if they threaten to close their local operations.

The French company is familiar with Putin’s approach to nationalisation. After Avtovaz became the target of brutal wars between armed gangs, the government effectively took control in the mid-2000s by sending hundreds of armed policemen to a shareholder meeting.

Renault bought into Avtovaz in 2008 after Rostec, a major defence player, was tasked with cleaning it up. This alliance has added to the French headache. Rostec, which retains a one-third stake, is headed by Sergey Chemezov, a close Putin ally sanctioned by Western governments. Rostec is also the majority shareholder of Novikombank, one of the seven lenders excluded from the Swift international payments network earlier this month.

Some of Russia’s nationalist newspapers have questioned why Renault, which is 15% owned by the French state, should be allowed to operate in the country. In the rest of the world, the company’s brand could suffer from its associations with the Russian military. A bad situation could soon turn uglier.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

CONTEXT NEWS

- Jean-Dominique Senard, the chairman of Renault, said on March 10 that the French carmaker’s recovery was “on the right track” and that its “long-term strategy goes well beyond the current strategy in Russia.”

- Renault shares closed at 22.31 euros on March 11. They have fallen 40% since Feb. 16, before Russia attacked Ukraine.

- Renault owns 68% of Lada Auto Holding, the parent company of Avtovaz, Russia’s largest carmaker. It controls about 29% of the country’s market share.

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Editing by Peter Thal Larsen and Oliver Taslic

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