Summary
- Geely, Renault launch JV for gasoline engines, hybrids
- Volvo Cars’ legacy engine business to be absorbed into JV
- Deal part of extensive overhaul at Renault
As automakers plan for an electric future, China’s Geely on Tuesday put a bet on gasoline engines being around for years to come by negotiating a joint venture with Renault that will also include the legacy engine business of Geely’s Volvo Cars.
The 50-50 venture, comprising gasoline engines and hybrid technology, will seek to boost sales by also supplying other automakers.
While that will trim costs and help Renault (RENA.PA) free up resources to invest in its electric business, several analysts said the logic seemed rather different for Geely (0175.HK). Bernstein analysts wrote in a client note:
“We wonder if there is a broader (Geely) plan to consolidate assets for internal combustion engines? There may be an opportunity to bring together leading assets … and corner this ‘unloved’ part of the market, which will need to function for decades to come.”
The preliminary agreement is part of a drastic reshaping of the auto industry as it moves towards cleaner driving technologies, but also highlights the different strategies carmakers are taking on.
For Renault, the venture is part of an extensive overhaul being launched on Tuesday that will see it split its activities into five businesses, including an electric vehicles unit that it wants to list in 2023 while maintaining a controlling stake.
The French carmaker is also making efforts to renew its alliance with Nissan Motor Co (7201.T), seeking to persuade its Japanese partner to invest in its new electric unit. Nissan restated on Tuesday it was looking at such a move.
Ford Motor Co (F.N) has also started spinning off its operations into electric, combustion engine, and commercial vehicles, though Stellantis (STLA.MI) has disapproved of such a move as traditional automakers struggle with how best to keep up with Tesla (TSLA.O).
Renault CEO Luca de Meo told investors:
“We are creating independent businesses, focused on structurally more profitable activities, open to external investments, each built around an indigenous set of technologies.”
For Geely, the deal adds to its pattern of creating partnerships to expand beyond China. It owns Sweden’s Volvo Cars (VOLCARb.ST) and also has a stake in Mercedes-Benz (MBGn.DE).
As part of Tuesday’s deal, Volvo Cars will sell its 33% stake in its Aurobay joint venture with Geely. That unit will become part of the Geely-Renault venture.
NISSAN’S CONCERNS
The joint venture will create jobs for 19,000 people at 17 powertrain facilities and three research and development hubs, Renault and Geely said, adding they anticipated reaching a final agreement and launching the new company next year.
This deal comes after at least three months of negotiations, a person familiar with the terms told Reuters. The new company will be based in London, said the person, who was not allowed to talk to the media and refused to be named. Geely and Renault will each own 50%, the companies said in a statement that did not state other financial terms.
Buy Crypto NowThe outcome of Renault’s negotiations with Nissan continues to be an open question, however. Nissan has said it is looking at an investment in Renault’s electric venture.
However, Nissan has aired concerns about the treatment of intellectual property, including battery and powertrain technology, in its negotiations with Renault and has stated those concerns stretch out to any partnership the French automaker clinches with Geely, people familiar with the discussions have said.
Geely and Renault said they believe their new joint venture would supply hybrid powertrains and internal combustion engines to both Nissan and Mitsubishi Motors (7211.T), the junior partner in Renault’s existing alliance.
The venture would have the capacity to supply about five million engines and hybrid systems each year once it is up and running, they said.
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