Renault-Nissan alliance disputes continue, Geely joint venture Renault "in the fire"

Economic Observer reporter Wang Shuaiguo Since former CEO Carlos Ghosn was arrested in 2018, the world's third-largest car group Renault-Nissan-Mitsubishi alliance, which has broken out again this year. The struggling Renault is bent on accelerating business transformation, while the increasingly hawkish Nissan is insisting on achieving a reciprocal stake in Renault. The two sides continued to quarrel and met several times at the negotiating table. This feud, which was originally just a feud between two international car companies, has now squeezed into a new role - China Geely.

On November 8, Geely Automobile Holding Co., Ltd. ("Geely Automobile") announced in Hong Kong that Zhejiang Geely Holding Group Co., Ltd. ("Geely Holding"), Renaults.a.s. (hereinafter referred to as "Renault") and Geely Automobile have entered into a framework agreement. The three parties propose to establish a joint venture company (the "Joint Venture") to integrate their respective expertise and strengths in the internal combustion engine, hybrid and plug-in hybrid powertrain and transmission businesses and related technologies.

On the same day, Renault Motor presented a series of initiatives aimed at accelerating the transformation at the Capital Markets Day in Paris, mainly the spin-off of five businesses, covering electric vehicles, internal combustion and hybrid engine assets, the Alpine brand, financial services, as well as new mobility and recycling businesses. The above-mentioned joint venture with Geely Group is also included.

Renault said: "The new company (in partnership with Geely) will offer a full range of advanced engines and transmissions, including electrified versions, to many brands around the world. With the new company, it is expected to operate 17 drivetrain machine shops and five R&D centers on three continents, with approximately 19,000 employees and a combined capacity to produce more than 5 million transmissions and internal combustion engine, hybrid and plug-in hybrid vehicles annually.

The joint venture with Geely is part of Renault's long-planned divestiture of its internal combustion engine business. However, it is different from previous rumors, which previously reported that Geely may take over Renault's internal combustion engine business entirely, and the two sides eventually reached a 50:50 equal share ratio.

As a result, the industry speculated that there were factors of obstruction from Nissan. Because Renault wanted to sell its internal combustion engine business to Geely, Nissan repeatedly objected. In the Renault-Nissan-Mitsubishi alliance, Renault and Nissan have long competed for dominance of the alliance, and the alliance is not up to the Renault family.

For Geely Holding, through the cooperation with Renault, it will be able to acquire Renault's technology in internal combustion engines and help the group explore overseas markets. Renault can use this to introduce new capital to better transition to electrification and get rid of development difficulties. But whether the cooperation between Geely and Renault can be implemented depends on Nissan's meaning.

In order to get Renault, Geely and Volvo Qi went into battle

Renault's relationship with Geely began last year. At the beginning of 2021, Geely Group's supercar brand Lotus and Renault's Alpine announced a technical partnership, and Lotus Group and Renault signed a memorandum of understanding on joint research in various fields to jointly develop next-generation electric supercars in the future.

Geely is a well-known "overseas M&A expert", and it has invested in acquisitions and reached cooperation with many car companies around the world, acquiring Volvo, Lotus, and holding shares in Mercedes-Benz. But the technical cooperation between the two sports car brands Lotus and Alpine is just an appetizer for Geely and Renault to come together. Subsequently, Geely embarked on an in-depth cooperation journey with Renault.

In August 2021, Geely Holding and Renault signed a memorandum of understanding to establish a long-term strategic partnership, in which the two parties said the cooperation will initially focus on the development of hybrid vehicles in core fast-growing markets such as China and South Korea. In January 2022, Geely Holding signed a framework agreement with Renault to launch a new model series for the Korean market, specifically developing and selling ICE (internal combustion engine) and hybrid vehicles.

In May 2022, Geely Automobile announced that its wholly-owned subsidiary, CIL (a subsidiary of Geely Automobile, which is mainly engaged in investment holding), will subscribe for 34.02% of Renault's subsidiary Renault Korea (a joint venture between Renault and Samsung Group of South Korea) for CNY 1.376 billion. The two parties agreed that in the two fiscal years of 2022 and 2023, Renault Korea Auto will pay a dividend of no less than 328 million yuan to Geely Automobile.

It is understood that the first production car jointly developed by Renault Group and Geely Holding in South Korea will be launched in 2024, which is a mid-size hybrid crossover that will be produced at Renault Korea Motor Company's plant in Busan, built on Volvo's compact modular architecture platform, and targeted at South Korea and export markets.

The reason why Geely Holding can reach in-depth cooperation with Renault is an important role that cannot be ignored is Volvo, which has been integrated into Geely. Renault and Volvo crossed paths as early as the 90s. France led Renault's annexation of Volvo, but failed due to fierce opposition from the Volvo union.

In July 2021, following Geely Holding's long-term strategic partnership with Renault, Volvo announced the establishment of a joint venture with Geely, Au-robay, and the injection of all assets of its powertrain subsidiary, Pow-ertrain EngineeringSweden, into the new company, including engine plants and related R&D teams in Sweden and China.

According to a number of overseas media reports, the shareholder to be introduced by Renault's internal combustion engine business is Aurobay. In other words, in order to promote cooperation with Renault, Geely and Volvo have joined forces to "plan for a long time".

Even more coincidentally, on November 8, 2022, at the same time that Renault and Geely announced the establishment of a joint venture, Volvo Cars also announced that it would divest its internal combustion engine business and concentrate its capital on the development of high-performance electric systems. Specifically, Volvo Cars will sell all 33% of its stake in Aurobay to Geely.

It is reported that the deal between Volvo and Geely is also to serve the newly formed joint venture between Geely and Renault, and Aurobay will become part of the joint venture.

Renault sought to get out of trouble and split the internal combustion engine and electric engine divisions

Unlike the early days of saving Nissan from fire and water, Renault has fallen into a trough of development in recent years. Sales data shows that Renault's global sales in 2021 were 2.696 million units, falling for the third consecutive year and down by more than 1 million units from 3.9 million units in 2018. In 2019 and 2020, Renault Group's net profit began to show losses, with a cumulative loss of 64 billion yuan in two years.

In order to change the dilemma, Renault released the "Renaulution" strategic plan at the beginning of 2021, which sorted out the group's development in the next five years. The "Renaulution" strategic plan is divided into three phases: "rejuvenation", "innovation" and "change", including the appropriate adjustment of production capacity in response to the financial crisis, the rationalization of model platforms from six to three, and the rational optimization of powertrains from eight series to four series.

In February 2022, Renault announced plans to split its internal combustion engine and electric vehicle businesses into two "separate entities", with the electric vehicle business and technology concentrated in France and the internal combustion engine, hybrid vehicles and transmissions produced outside France.

Geely took advantage of Renault's transformation to intervene and had its own calculations. As a world-renowned car company with a history of more than 100 years, Renault's technology accumulation in the field of fuel vehicles is much deeper than that of Geely Automobile. The joint venture between Geely and Renault is conducive to its expansion to overseas markets and to learn Renault's fuel vehicle technology.

When announcing its acquisition of Renault Korea Automotive in May this year, Geely Auto said that the company cooperated with Renault for two reasons: first, to promote the internationalization of products and consolidate its global market position; The second is to create synergies with existing businesses.

For Renault, focusing on the development of electric vehicles has become an important direction, and the most direct benefit of the introduction of the internal combustion engine business into Geely is that it can get a part of the capital. Second, Renault can use Geely's hybrid R&D resources to shorten the transition time from combustion engine vehicles to hybrid vehicles. In addition, Renault has been losing ground in the Chinese market in recent years, and its launch with Geely has also brought new possibilities for its future revitalization of its business in the Chinese market.

According to the Renault Group's separation and restructuring target announced on November 8, the company aims to achieve an operating profit margin target of 8% by 2025, rising to more than 10% by 2030, and an expected target of 5% this year by splitting its five business units, including electric vehicles, internal combustion engine and hybrid powertrain, and Alpine sports cars. Annual operating cash flow will increase from €1.5 billion this year to €2 billion over the next five years between 2023 and 2025.

The reason why Renault and Geely chose to take the lead in cooperating in the Korean market is related to the particularity of the Korean market. Because of free trade agreements with other international markets and the mature automotive industry, South Korea is regarded as an important strategic base by many global car giants. By producing and exporting automobiles in South Korea, trade barriers can be greatly reduced.

Renault CEO Luca de Meo has said that the Busan plant will become "an export center for our medium and large cars." With an annual production capacity of 300,000 units at the Busan plant, the company is currently responsible for producing the Renault Arkana compact crossover for export to Europe, and in the past also produced the Nissan Rogue model for the North American market.

Nissan's attitude is crucial in reshaping alliances

Because Renault shares technology with alliance partner Nissan, Renault's business split plan needs to be approved by Nissan, and Nissan has not relented on this. Nissan President Makoto Uchida said at the end of September that the company's future development would be based on the Renault-Nissan-Mitsubishi alliance and that it did not plan to establish a partnership outside of it.

As a result, Renault, which is bent on promoting strategic transformation, has to face the dilemma of compromising with Nissan or abandoning the search for partners outside the alliance. Currently in the Renault-Nissan-Mitsubishi alliance, Renault owns about 43 percent of Nissan, while Nissan holds only 15 percent of Renault. Nissan has always been dissatisfied with such a shareholding relationship.

Since Renault announced its business spin-off plan in February, Renault has held several meetings with Nissan executives to discuss Renault's business spin-off plan and the restructuring of the alliance's capital relationship.

On October 8 this year, Luca de Meo flew to Tokyo for talks with Makoto Uchida for a month of negotiations. The negotiations include: studying the possibility of Renault reducing its stake in Nissan from 43% to 15%; persuaded Nissan to agree to Renault's sale of part of its internal combustion engine business to Geely; Nissan was persuaded to agree to invest in Renault's new electric vehicle and software subsidiary. Nissan, for its part, opposed Renault's sale of its internal combustion engine business to Geely, fearing whether the alliance's intellectual property rights could be protected.

In fact, the reshaping of the Renault-Nissan-Mitsubishi alliance relationship is the main point of the negotiations between Renault and Nissan, and the cooperation between Renault and Geely is more like a small chip on the card table.

The Renault-Nissan-Mitsubishi alliance has reached a moment of relationship reinvention. In 1999, Renault joined Nissan, which was in insolvency, and Carlos Ghosn, then vice president of Renault Motors, became the CEO of Nissan Motor, and under his series of cost-cutting reforms such as closing factories and cutting the research and development department, Nissan was saved from the brink of death in just two years. In 2005, he became CEO of Renault Motors, becoming CEO of Double Material. In October 2016, under the leadership of Carlos Ghosn, Nissan acquired a controlling stake in Mitsubishi Motors for 237.35 billion yen, and the Renault-Nissan-Mitsubishi alliance was established.

Industry analysis believes that Renault did not acquire all the shares of Nissan Motor immediately after acquiring Nissan shares that year, laying the groundwork for protracted disputes between the two sides in the future. In April 2017, Carlos Ghosn was forced to step down as CEO of Nissan Motor because Renault once again revealed its intention to acquire Nissan, and Nissan strongly opposed the merger. Then the dispute between Renault and Nissan escalated significantly, and Carlos Ghosn paid the price of his arrest. On November 19, 2018, Ghosn was arrested by Japanese prosecutors at Tokyo Airport. Since then, the struggle for dominance in the Renault-Nissan-Mitsubishi alliance has entered a new tug-of-war.

Today, the Renault-Nissan-Mitsubishi alliance game is still ongoing, and the cooperation between Geely and Renault is one of the variables, and whether it will eventually take place is still unknown, although Renault expects the joint venture project to be completed in 2023. In any case, Geely's cooperation with Renault is like tearing a crack within the Renault-Nissan-Mitsubishi alliance, giving a glimpse of the complex grievances.