In tie-up with Geely, Renault is ditching Alliance partner Nissan to re-enter China

Last week, Renault made a surprise announcement, inking a memorandum of understanding with Geely to co-develop hybrid vehicles for Korea and China.

The joint statement by Geely and Renault said:

“Following the adoption by Geely Holding’s open-source strategy for its full vehicle architectures, Geely Holding will partner with Renault Group in the Chinese and Korean markets.

“In China, based on Geely Holding’s existing technologies and mature industrial footprint, both partners will jointly introduce Renault-branded hybrid vehicles. Renault will contribute on branding strategy, channel and service development, defining appropriate customer journey.

“In South Korea, where Renault Samsung Motors has over two decades of experience, the MoU allows Renault Group and Geely Holding to jointly explore localization of vehicles based on Lynk & Co’s energy-efficient vehicle platforms for local markets.”

What was not said by Renault however, is where does this leave its fellow Alliance partner Nissan?

In April last year, Renault quit China, breaking up its partnership with Dongfeng Motor, which is also Nissan’s Chinese partner. So the decision to re-enter China with a new partner raises questions on what went wrong with the partnership with Dongfeng?

Renault has failed to crack the Chinese market for years but Nissan is doing very well there, with the same local partner Dongfeng.

Nissan’s sales in China are not as high as that of Toyota, but considering that Nissan only has one local Chinese joint venture (Dongfeng-Nissan) versus Toyota’s and Honda’s two (FAW-Toyota, GAC-Toyota, GAC-Honda, Dongfeng-Honda), it’s a reasonably good performance.

Curiously, instead of leveraging on Nissan’s strength in China, Renault chose to go to bed with Geely instead.

A recent report by Automotive News Europe says,“A Geely tie-up would help Renault tackle several problems, including both its lack of access to the China market and unused capacity at its struggling South Korean operation. But to some, the move also raises questions about Renault's intentions toward its 21-year alliance with Nissan, which has frayed since the 2018 arrest and ouster of former alliance Chairman Carlos Ghosn.”  

"This looks like the beginning of an exit strategy," one former high-level Renault executive told Automotive News Europe, speculating about a rebalancing of the alliance.

However, the publication also added the deal with Geely is necessary to solve the problem of overcapacity at its Korean unit Renault Samsung Motor’s Busan plant, a problem created by Nissan.

“Renault's Korean subsidiary, Renault Samsung Motors, used the capacity of its Busan factory to make vehicles for Nissan, including the Rogue crossover for export to the U.S. But Nissan pulled that production in-house to deal with its own overcapacity issues.

“In May 2020, Nissan said it would withdraw from selling cars altogether in South Korea, where local players Hyundai and Kia dominate the domestic market with a combined 70 percent share,” said the publication.

"The short-term intention is really to find a solution for the Korean plant," said one person familiar with Renault Chairman Jean-Dominique Senard’s thinking on the Geely deal. "It's a solution to keep this factory alive."

Still, the partnership with Geely puts the future of the Renault-Nissan-Mitsubishi Motors Alliance into even greater doubt.

Extracting synergies and leveraging on the alliance partners’ stronger market presence in the respective regions - which in the case of Asia, is Nissan - is the foundation of the Alliance. If an Alliance member no longer does that, ditching a member in favour of an outside party, then there is no point in keeping the Alliance any further.

The Alliance was established in 1999, first as the Renault-Nissan Alliance, before expanding to include Mitsubishi Motors in 2016 (formalized in 2017).

Also read: From CEO to fugitive: Who is Carlos Ghosn and why is Interpol looking for him?

Since the ouster of former Nissan CEO and Alliance chairman Carlos Ghosn, there has been a lot of friction between Renault and Nissan. The former is controlled by the French government (15 percent, its single biggest shareholder) and although Nissan contributes more revenue and sales, the Japanese have less voting rights than the French government, which is the main point of contention that threatens to unravel the once successful Alliance.