Here’s Why Renault Is Stuck in Russia

Renault says it is suspending its industrial activities in Russia but has not stated whether it will leave the country entirely.The French automaker owns a majority stake in Russia’s AvtoVAZ, which produces vehicles under the Lada brand and operates plants that produce Renault-branded models for the Russian domestic market.Renault faces political pressure over its position in Russia, as well as an uncertain future if it stays or if it sells its stake and leaves.Since the start of Russia’s invasion of Ukraine, a number of foreign automakers with presence Russia, including Volkswagen, have suspended plant operations and halted vehicle deliveries virtually overnight, placing in doubt their continued presence in the country. The start of military operations has disrupted logistics in both countries, as well as in the European Union, with several German automakers pausing assembly at plants in western Europe following component shortages—an issue not expected to be resolved for weeks or months.Russian politicians suggesting nationalization of idle plants operated by European automakers such as Volkswagen have only fueled speculation about longer term exits of foreign automakers, while adding uncertainty to short-term production prospects. Related Stories Ukraine War Promises More Chaos for Automakers Auto Industry Responds to Russian Invasion But few automakers have had a stake in Russia’s auto industry as large as Renault: It owns a majority stake in Russia’s AvtoVAZ, which was founded in the 1960s as a plant for licensed production of Fiat models and remains the country’s main domestic passenger car producer following the closure of AZLK in Moscow and the end of car production at Nizhny Novgorod’s GAZ. Renault currently has a 68% stake in AvtoVAZ, which produces cars under the Lada and Renault brands, making its position in the country’s industry far more difficult to untangle or shut off overnight.After weeks of conflicting reports about Renault’s long-term plans for its Russian operations, as well as indications the automaker was reassessing its position there, the automaker stated a few days ago it plans to suspend production at its Moscow plant. Renault’s plant in Moscow produces Renault models for the Russian market, including the Kaptur crossover. Renault “Regarding its stake in AvtoVAZ, Renault Group is assessing the available options, taking into account the current environment, while acting responsibly towards its 45,000 employees in Russia,” the automaker said in a statement. However, the production halt is believed to be tied as much to component shortages as political considerations. Renault also revised downward its group operating margin for 2022 from approximately 4% to 3%.The moves still suggest a holding pattern of sorts, with the automaker likely awaiting decisive developments in the military conflict itself that could provide further clarity regarding its long-term prospects in the country. Depending on the outcome, Renault could choose to stay or sell its stake to other major shareholders, the Russian government, or new investors. Related Story Porsche Production Affected by Ukraine Invasion Renault’s position is especially difficult as Russia’s own domestic auto market could face a significant downturn even given a quick resolution to the military conflict, making its continued stake in AvtoVAZ and its own operations in Russia difficult for a number of years, while also facing criticism in western Europe over its refusal to withdraw from the Russian market altogether. Likewise, its continued operations in Russia could face production halts due to the breakdown of the supply chain and the production of components—problems that other automakers even without operations in Russia are now facing in Europe. If Renault were to abandon or sell its stake in the current financial and political environment, on the other hand, it would be doing so at a disadvantage while in the process likely giving up one tenth of all Renault Group sales in the country, representing nearly half a million vehicles annually.As a result, the automaker appears to be caught in a dilemma and is likely awaiting political developments that could point to a clearer path in either direction.