Facing the threat of a global boycott, Renault has again halted operations at its Russian assembly plant and will now decide whether to shed its majority stake in that country’s largest automaker Avtovaz. But the Russian government has sent signals it could take over the operations now abandoned by Renault and other foreign automakers.
Renault initially followed the lead of competitors like Toyota, Volkswagen and its Japanese alliance partner Nissan in shutting down Russian operations in the wake of that country’s brutal invasion of Ukraine. But it reversed course and briefly reopened an assembly plant in Moscow that produces models such as the Renault Duster, Kapar and Arkana models, as well as the Nissan-branded Terrano.
That move set off a wave of criticism from critics of the Russian invasion, including civilian groups, government leaders in the U.S. and U.K., and business leaders, such as political activist and Euro-American financier Bill Browder, who accused Renault of giving “a big middle finger to the civilized world.”
A double about-face
With the prospect that it could face a boycott of its own, Renault again did an about-face last Thursday, notifying Russia’s Ministry of Industry and Trade it would close the Moscow plant. It also indicated plans to assess its holdings in Avtovaz, the Russian carmaker produces a variety of vehicles in the capital city that are sold under the Lada and Renault brands. It was forced to trim back operations at plants in Togliatti and Izhevsk this week as it began running out of foreign-made parts and components.
The sanctions levied against Russia since it invaded Ukraine three weeks ago have had a devastating impact on its economy. Compounding the crisis, more than 400 foreign corporations, from McDonald’s to Nestle, have shut down their Russian operations.
After initially shutting down its Moscow plant, Renault briefly reopened this past Monday, a move that had the backing of the French government which holds a 15% stake in the company.
Backlash and boycott threat
But that quickly triggered a backlash, including harsh comments from Ukrainian President Volodymyr Zelenskyy, who accused the automaker of being compliant with the Russian “war machine.” Renault joined the line-up of companies ceasing Russian operations on Thursday.
Renault is expected to feel a sharp pinch from its latest decision. The Paris-based automaker generated about 10% of its global revenues from Russia in recent years. Avtovaz — which began as a state-owned enterprise under the former Soviet Union — sold 350,000 vehicles last year, making it far and away Russia’s largest automaker.
Renault acknowledged it will take a hit to both free cash flow and profit margins for 2022, as a result of its production halt. And it advised investors that it might have to take a writedown on its Russian operations.
Russia eyes expropriation
But it could face even bigger problems. Analyst Joe McCabe, CEO of AutoForecast Solutions, warned that there is a “high risk” that Russian authorities will now take over Renault’s Russian holdings.
“Putin’s not shy about walking away from an industry that supports employment in his country, that builds product for local consumers,” McCabe wrote. “There are high odds that companies that have left, or ones that are leaving, are nationalized for the sake of his country’s economy.”
According to CNN, Russian President Vladimir Putin has proposed the idea of “external management” of foreign-owned businesses, with an eye towards the automotive factories that provide a significant number of Russian jobs.
Supply lines cut
Other automakers have acknowledged this risk. In its recently released annual report, Mercedes-Benz said holdings worth $2.2 billion could be expropriated by the Putin regime.
But for the Russian government, such a move wouldn’t necessarily do much to put local plants back in operation. Despite efforts by Putin to build up a national supply base, a significant share of the parts and components used by Russian assembly plants come from abroad, and sanctions have made it increasingly difficult to keep supply lines operating.