Article Type: Video

Renault sells Russian operations with buyback clause

Renault Group is selling its majority stake in Russian automotive company Avtovaz as well as its Renault Russia business, as it exits the country’s market following Russia’s invasion of Ukraine.

Along with many other carmakers, Renault ceased operations in Russia as the international community turned its back on the country, with governments increasing sanctions as a result of its actions. The company has now decided to offload its activities in the country, to safeguard the jobs of all employees of its Russian businesses.

However, the French automotive group has worked an option into the sale of Avtovaz, allowing it to buy back its majority stake within the next six years, This shows the company is likely still hoping for a peaceful resolution to the conflict and the reopening of international relations.

Shares in Avtovaz will be bought by The Central Scientific Research Automobile and Automotive Engines Institute (NAMI), while Renault Russia will be purchased by Moscow City.

Safeguarding jobs

‘Today, we have taken a difficult but necessary decision, and we are making a responsible choice towards our 45,000 employees in Russia, while preserving the group’s performance and our ability to return to the country in the future, in a different context,’ said Luca de Meo, CEO of Renault Group. ‘I am confident in the Renault Group’s ability to further accelerate its transformation and exceed its mid-term targets.’

The sale of the businesses has been backed by Renault Group’s board. The closing of the transactions are not subject to any conditions or checks. All required approvals have been obtained. Russia’s current international reputation is likely to make it difficult to attract potential buyers, therefore selling to Russian authorities means a quicker transaction, providing a ‘win-win’ for Renault Group.

The French carmaker confirmed it will include a non-cash adjustment charge amounting to €2.2 million in the company’s first-half 2022 results, to cover the suspension of activities in Russia. Activities in the country will consequently be deconsolidated in Renault Group’s financial statements and will be accounted for as discontinued activities.

Renault Group is one of many European carmakers and automotive companies with plants or business activities in Russia. Following the invasion of Ukraine, these companies were left with the problem of what to do with these outlets in the face of increasing political pressure on the country. Daimler Truck suspended all business activities in Russia until further notice in March, while Ford did the same with operations through its Ford Sollers joint venture. Shell Oil announced its intention to withdraw from Russian oil and gas, and has also sold its retail and lubricants businesses in the country.

Suspended production

Referencing the ASM trade union, Reuters reported that Avtovaz suspended vehicle production at its plant in Russia until 20 May. The company also looks to impose a four-day working week for three months from June, in response to component shortages.

This is not the first time Avtovaz has ceased vehicle manufacturing due to shortages. In February, shortly after Russia’s invasion of Ukraine, the company halted its lines in Togliatti, Russia. Renault told Autovista24 at the time that this was down to the worldwide electronics chip shortages.

What is a semiconductor?

The automotive industry is competing with other markets for a crucial piece of technology which cannot easily be sourced, the semiconductor. The shortage of semiconductors has led to vehicle production shutdowns and delayed deliveries, impacting registrations and financial results. But what are semiconductors, why are they important and how big a problem is the shortage of supply? Autovista24 editor Phil Curry explains all in the latest What is? video.

The semiconductor problem

Car manufacturers are increasing the amount of technology in their vehicles, and this means greater use of semiconductor chips. Cars can have up to 4,000 chips inside, premium vehicles featuring more than budget cars. Semiconductor chips can be found in everything from powertrain options to chassis-handling controls, infotainment, safety and security systems and comfort options.

During the COVID-19 pandemic carmakers reducing their supply of chips on the back of less vehicle demand, while the demand for consumer electronics goods increased. With people staying at home.

This meant that as vehicle manufacturers increased their production capabilities again, there were not enough semiconductor chips available. This has led to 18 months of delayed vehicle deliveries, impacting registrations of new vehicles and financial performance.

The problem is the complexity of the semiconductor chip. They are manufactured using extremely rigorous and complex methods. They require large factories, dust-free rooms and carefully controlled atmospheres. The etching and layering of the chips is very time consuming, meaning overall, a single microchip can take three months to produce

The automotive industry is finding ways to reduce reliance on semiconductor chips while supply levels increase. Carmakers are prioritising markets, reducing the number of available technological optional extras and sharing systems more between models. The chip-supply shortage could last for the rest of the year. However, companies are slowing investing in new production facilities, although these may take some time to become operational, as building new factories is time-consuming.

The semiconductor and the chip

A semiconductor is a material with properties between a conductor and an insulator. It is usually a solid chemical element or compound that conducts electricity under certain conditions but not others, making it ideal to control current, and therefore electronic appliances.

A good example of a semiconductor material is silicone with controlled impurities added. This is called ‘doped’ silicone, and depending on additives, the number of electrons can be increased or lowered, giving different conductive effects.

Semiconductors are an important component when creating integrated circuits, also known as chips or microchips. Many people will interchange the terms, but the semiconductor is the material, while the chip is the electronic part that controls systems.

Integrated circuits are built from a number of microscopic circuits, transistors, diodes and wiring fabricated on top of a semiconductor. These parts work together to handle the processing tasks of most electrical components. These chips can replace many larger circuits, with the semiconductor regulating energy flow. This means the chips can be made smaller, and more powerful.