Geely will buy a 34.02% stake in Renault South Korea, who is looking after whom?

Gao Feichang/Wen On May 10, Geely officially released the news that Geely Automobile Holdings (0175. HK, hereinafter referred to as "Geely Automobile") signed an agreement with Renault Group that Geely Automobile will subscribe for 34.02% of the shares of Renault Korea Automobile's capital increase and share increase, and the cooperation is subject to the approval of the relevant departments.

On January 21, 2022, Geely Automobile's parent company, Geely Holding Group, and Renault Group formally signed a framework agreement to announce the launch of new hybrid technologies and models to the Korean market. It is not difficult to see that the above-mentioned new agreement for Geely Automobile's acquisition of Renault Korea shares is a deepening and continuation of this cooperation.

Geely will invest about 264 billion won (about 1.376 billion yuan). After the transaction closes, Geely Automobile will hold a 34.02% stake in Renault Korea Motors through its subsidiary, Centurion Industries Limited. Renault Group will remain Renault's majority shareholder in Korea.

In its cooperation agreement in January, Geely Holdings and Renault Group said they would launch hybrid models in the Korean market and plan to launch them in overseas markets. The new car will be produced at Renault Samsung's plant in Busan, South Korea, and mass production is expected in 2024.

Specifically, the new product will use the Geely CMA modular architecture and use Geely hybrid technology. In terms of sales network, the new product line developed by the two companies will leverage the existing Renault Korea sales and after-sales network.

Geely and Renault South Korea have cooperated twice, what is the significance? On the surface, Geely Automobile will have the opportunity to import its hybrid products into the Korean market, and Renault has also received the blessing of Geely's new technology, and both sides are expected to achieve the purpose of covering more markets, including the Chinese market, through exports in the Korean market. This is a "win-win" cooperation.

However, the reality is not optimistic. For Geely and Renault, the demands of both sides are not completely consistent.

First of all, in the Korean domestic market, Renault Korea's competitiveness is worrying. Judging from the latest sales ranking in April 2022, the top 6 brands in the Korean auto market are Kia, Hyundai, Genissy, Ssangyong Motors, Chevrolet and Renault. Renault sold 2,328 cars in South Korea that month, while first-place Kia sold 50,995 cars, a huge gap between the two.

What cannot be ignored is that the top four brands in the Korean market are all Korean local brands. The fifth Chevrolet was formerly known as GM Daewoo, which is also a Korean brand. In detail, South Korea's Renault was formerly known as Renault Samsung, and later renault acquired most of the shares into South Korea's Renault, in fact, it is inseparable from the role of "Korean brand genes".

Therefore, on the basis of Renault Korea's weak competitiveness, it is not an easy task for Geely to pry open the Korean market dominated by Local Korean brands through Renault Korea. In the past few years, geely has extended its tentacles to Europe, Southeast Asia and other markets through continuous overseas mergers and acquisitions, but it is the first time to enter the Korean market. Will entering hybrid models and leveraging Renault's Korea sales-service network be a new opportunity or a new challenge? That remains to be tested.

But Renault South Korea's export performance is good, which may be a practical reason why Geely looks at Renault South Korea. According to South Korean media reports, Renault South Korea sold a total of 20,318 vehicles in April, more than double the 9,344 vehicles in the same period last year. From January to April, Renault's sales in Korea increased by 77% from 31,412 units in the same period last year to 55,554 units. This comes mainly from the contribution of exports. Driven by strong demand for XM3 and QM6 SUV models, Renault South Korea's exports soared to 17,990 units in April from 3,878 units in the same period last year, an increase of more than four times.

In this cooperation, the benefits for Renault are more at this stage. Renault is currently implementing the Renaulution Program. In 2021, Renault Group will release a new strategic plan of "Renaulution", which will adjust the strategic focus from the pursuit of sales to more emphasis on value creation. In terms of products, Renault plans to launch 24 products by 2025, including at least 10 pure electric vehicles. For the Chinese market, we will develop models suitable for local brands.

In the Chinese market, Renault Group said that its current strategic focus is on electric vehicles and light commercial vehicles, and will develop local brand models. But in fact, Renault is already in danger of being marginalized in the Chinese market. Previously, Renault had four joint ventures in China: Dongfeng Renault, Renault Brilliance Jinbei, Jiangling Group New Energy, and EasyJet New Energy, but at present, Renault's presence in the Chinese market tends to "wither away".

Among them, Dongfeng Renault has announced its withdrawal from the Chinese market in April 2020, and Dongfeng Renault has 100% owned by Dongfeng Group. Dragged down by the bankruptcy and restructuring of Brilliance Group, Renault Brilliance Gold Cup has also come to the brink of layoffs and bankruptcy. At present, Renault's business in China is only two companies left, Jiangling Group New Energy and EasyJet New Energy.

In July 2019, Renault announced a capital increase of 1 billion yuan to invest in Jiangling Group New Energy, holding 50% of the shares. As a new energy vehicle company that has obtained the "dual qualification" of the National Development and Reform Commission and the Ministry of Industry and Information Technology, Jiangling Group's new energy sales reached 100,000 units in the four years from 2015 to 2018. However, since then, sales have declined all the way, with cumulative sales of only about 4,000 vehicles in 2021.

EasyJet New Energy was established in October 2017 as a joint venture between the Renault-Nissan Alliance and Dongfeng, with Dongfeng, Renault and Nissan holding 50%, 25% and 25% of the shares respectively. The company is mainly engaged in the development of electric vehicle technology and the production of electric vehicles, but not only produces Renault models, but also includes many brands of electric vehicles under Dongfeng. According to the official statement of EasyJet, in 2021, the company will achieve a total output value of 3.876 billion yuan and a cumulative export of 35,000 vehicles, becoming the first and leading new energy export enterprise in Hubei Province. Overall, EasyJet's presence in the Chinese market is not strong.

Therefore, if Renault wants to find a new presence in the Korean market and the Chinese market, an important premise is the need to develop new products that can adapt to both markets as soon as possible. With the help of Geely hybrid technology and models, and then relying on exports, exporting products from the Korean market to the Chinese market is not a new way out for Renault's "curve self-help".