By Gilles Guillaume
PARIS (Reuters) -French carmaker Renault and Chinese rival Geely expect to finalise a joint venture for their combustion and hybrid engines towards the end of February, two sources close to the matter told Reuters.
At the same time, Saudi Aramco is set to announce the signing of a memorandum of understanding to invest in the venture, one of the sources said, a move that would confirm Aramco’s letter of intent from March last year.
The deal is key for Renault which, despite an improved performance, is overshadowed by bigger rivals including Stellantis. It could bolster a legacy business that still accounts for most of Renault’s income, while the company also tries to make headway with electric vehicles (EVs).
Renault’s unit Horse and Geely could end up with 40% of the joint venture each, with the remaining 20% going to Aramco, the source added. Discussions on the precise investment of the Saudi group are, however, ongoing.
In July, Renault and Geely had said the venture would be split 50-50, with Geely’s stake shared between its subsidiaries – 33% for Aurobay and 17% for GHPT.
“The projects advance as planned, we will communicate in due time,” a spokesperson for Renault said, while a spokesperson for Geely declined to give any details on the deal’s timing. Aramco said it could not immediately comment.
The venture will aim for 15 billion euros ($16 billion) in annual turnover and employ 19,000 people on 22 sites around the world – mainly in Spain, Romania, Turkey, South America and China.
It is one of the two main pillars of Renault’s strategy to stay in the race against larger competitors by signing multiple partnerships to reduce costs and access new markets.
The other pillar hit a speed-bump last month when Renault abruptly cancelled the planned initial public offering of EV unit Ampere, citing unfavorable market conditions.
COMPETING WITH STELLANTIS
The Renault-Geely venture will supply both the groups’ brands as well as third-party manufacturers.
Carmakers and other industry sectors have expressed interest in the new supplier, the two sources said.
They said that was true outside Europe, where many markets are far from switching to EVs, and also in Europe, where some potential clients do not rule out a delay to the EU’s 2035 ban on combustion engines.
“(The scrapping of the Ampere IPO) should allow Renault’s impressive turnaround in the legacy business to come back to the top of the agenda,” BNP analysts wrote in a note last week, adding this would also give the group more time to establish a track record in EVs.
According to a Reuters calculation based on the number of vehicles sold, the combustion and hybrid engine vehicles business accounted for around 93% of Renault’s 2023 sales, against around 7% for pure EVs, where a renewal of the model range is ongoing.
Renault, which will publish 2023 results on Thursday, is aiming for an operating margin at the top of its 7%-8% forecast range, up from less than 6% in 2022. It eyes 8% for 2025 and 10% for 2030.
Last year’s operational free cash flow from the automobile sector is expected to be at least 2.5 billion euros.
Stellantis, born from the merger between France’s PSA and Italy’s FCA, owns 14 car brands and is one of the most profitable in the sector. On Monday it denied Italian press reports that France was pushing for a merger with Renault.
Stellantis, which will publish results on the same day as Renault, is expected to deliver a double-digit adjusted operating margin.
($1 = 0.9289 euros)
(Reporting by Gilles Guillaume Additional reporting by Zoey Zhang in ShanghaiWriting by Piotr LipinskiEditing by Ingrid Melander and Mark Potter)
