Renault seals car deal with China’s Geely, but Nissan remains elusive

France’s Renault and China’s Geely announced a 50-50 joint venture on Tuesday for gasoline engines and hybrid technology, aiming to cut costs in what will become legacy businesses and free up resources for an electric vehicle future.

The venture, which will aim to maximise sales by supplying both companies’ brands as well as other automakers, is the latest step in a complex restructuring at Renault.

As well as carving out its internal combustion engine business to focus on electric cars, Renault is trying to revamp its alliance with Nissan Motor Co, aiming to convince its Japanese partner to invest in its new electric unit.

Those talks continue.

The scale of Renault’s planned overhaul - with the legacy business code-named “Horse” and the electric one “Ampere” - speaks to the pressure automakers now feel from investors and regulators to quicken their move to electric vehicles, with Europe having effectively banned combustion engines from 2035.

Ford Motor Co has also begun separating its operations into electric, combustion engine and commercial vehicles, though Stellantis has rejected such a move as traditional automakers grapple how best to compete with Tesla.

“We are creating independent businesses, focused on structurally more profitable activities, open to external investments, each built around an indigenous set of technologies,” Renault CEO Luca de Meo told investors.

However, Renault shares fell more than 4 per cent in early trade, perhaps reflecting the lack of news on talks with Nissan.

“There is no mention of Nissan monetization as expected - an important catalyst for shares for many investors,” RBC analyst Tom Narayan said in a note.

Renault’s joint venture with Geely will employ 19,000 people at 17 powertrain factories and three research and development hubs, the companies said, adding they expected to reach a final agreement and launch the new company in 2023.

It was not immediately clear whether the venture represents a step towards even closer collaboration on gasoline cars.

The preliminary agreement follows at least three months of negotiations and is non-binding, a person with knowledge of the terms told Reuters.

The new company will be based in London, said the person, who was not authorised to speak to media and declined to be identified. Renault and Geely will each hold 50 per cent, the companies said in a statement that did not detail other financial terms.

For Geely, the deal extends its pattern of building partnerships to expand beyond China. It also owns Volvo Cars and has a stake in Mercedes-Benz.

Still, the outcome of Renault’s talks with Nissan remain an open question. Nissan has said it is considering an investment in the Ampere electric venture.

However, Nissan has raised concerns about the treatment of intellectual property, including battery and powertrain technology, in its talks with Renault and has indicated those concerns extend to any partnership the French automaker strikes with Geely, people with knowledge of the discussions have said.

Renault and Geely said they expected their new joint venture would supply internal combustion engines and hybrid powertrains to both Nissan and the junior partner in Renault’s existing alliance, Mitsubishi Motors.

The venture would have the capacity to supply about five million engines and hybrid systems per year once operational, they said.

Nissan had no immediate comment. The announcement came ahead of a long-waited presentation by Renault on Tuesday in Paris to update investors on strategy. Ahead of the presentation, Renault said it aimed for an 8 per cent operating margin by 2025, compared with the 5 per cent expected this year, thanks to the plan to carve out the electric unit. The margin is seen rising to more than 10 per cent in 2030.

It is also aiming for an operating cash flow of more than 2 billion euros ($2 billion) a year between 2023-25 from more than 1.5 billion this year, rising to more than 3 billion euros in the following five years.

Renault and Geely have an existing joint venture in South Korea. Separately, Volvo Cars said it would divest its 33 per cent stake in its Aurobay unit to Geely, without disclosing terms.

Meanwhile a scaled-down version of China’s biggest air show opened on Tuesday, with some delegates unable to attend because of the country’s zero-COVID policy as virus case numbers there reached their highest level in six months.

The organisers of Airshow China in the southern city of Zhuhai last week told attendees they must arrive three days early because of COVID-19 precautions, but even then, some were blocked from entering the show because they visited a large district in Beijing that had positive cases last week, three attendees told Reuters on condition of anonymity.