Quitting Russia Could Be Just the Start of Renault’s Shake-Up

Renault RNO -0.04%

had a bad couple of years, culminating in a costly exit from Russia announced Monday. But if this latest crisis finally forces the French carmaker – and its backseat government shareholders – to rethink its capital allocation, all is forgiven. .

On Monday, Renault said it would sell its roughly 68% stake in AvtoVAZ, Russia’s largest carmaker, to a Moscow-backed research center, as well as a fully-owned factory. entirely in Moscow for local government. It will receive a symbolic ruble for each asset, The Wall Street Journal reported. It has the option to buy back its AvtoVAZ stock within six years.

The company is betting big on Russia under former CEO Carlos Ghosn amid a greater focus on emerging markets. It ended with taking a controlling stake in AvtoVAZ, maker of the iconic Lada brand, as part of a 2016 bailout as Russia’s economy reeled from low oil prices and a previous round of sanctions. there. After years of losses, the investment finally paid off — AvtoVAZ generated about 15% of Renault’s total operating profit in 2021 — when Russia’s invasion of Ukraine unexpectedly made it impossible political contest.

Many of Renault’s previous problems stemmed from tensions with global alliance partner Nissan.

NSANY 0.24%

When Mr. Ghosn was arrested in Japan in 2018, the relationship between the two companies he ran fractured. It remains unclear exactly what Renault receives from Nissan’s substantial but non-controlling 43% stake in Nissan. In some cases, such as the aborted merger with Fiat Chrysler in 2019, the Nissan link seems to be a drag on bold thinking.

As a result, investors value Renault at a larger discount for its parts total than most automakers. Excluding Nissan shares by market value, Renault shares are now worth only $615 million.

The good news is that the company under new CEO Luca de Meo finally seems motivated to tackle the problem. Last month, Bloomberg reported that Renault was considering selling a portion of its Nissan stake to help finance the transition to electric vehicles. And last week, the company said it was studying the potential to create new entities for its EV operations and software, on the other hand, for non-French engines and transmission assets. Each of these businesses will have about 10,000 employees of Renault’s approximately 110,000 people after leaving Russia.

Renault is valued by investors at an aggregate discount of its parts that is even greater than that of most automakers.


Photo:

REUTERS PHOTOGRAPHER / REUTERS

Many questions remain unanswered about how far these deals will go, what purposes they serve, and how they fit into the alliance with Nissan. Last week, the Japanese company told reporters it needed to better understand the plan. Renault still appears to be heavily directed by the French government, which owns a 15% stake. Among the few details revealed was the fact that the (future) electric vehicle business will be in France while the (past) traditional powertrain business will involve external assets. France.

For all the uncertainties, it is clear that Mr. de Meo is serious about shaking hands with Renault. The main goal is to prepare the company for a very different future. Whether that works or not, portfolio moves can help tap value buried in a company’s stock market valuation at the bottom. Mr. de Meo said he will share more in a strategy day this fall.

Renault has become less relevant for investors in recent years, but maybe now is a good time to start paying more attention.

The consequences of harsh economic sanctions against Russia have been and are being felt globally. WSJ’s Greg Ip joins other experts to explain the significance of what has happened so far and how conflict could transform the global economy. Photo illustrator: Alexander Hotz

Write letter for Stephen Wilmot at stephen.wilmot@wsj.com

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https://www.wsj.com/articles/quitting-russia-could-be-just-the-start-of-renaults-shake-up-11652717873?mod=pls_whats_news_us_business_f Quitting Russia Could Be Just the Start of Renault’s Shake-Up

Edmund DeMarche

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