Renault Production May Get Affected by Supply Chain Issues in Russia

Renault Chief Executive Officer Luca de Meo poses after a news conference as part of a visit to present the Re-Factory, a second-hand vehicles' factory, in Flins, France, on Nov. 30, 2021. Benoit Tessier/Reuters

French automaker Renault is concerned about the stability of its supply chains in Russia due to rising tensions between the country and Ukraine, which will have repercussions for the manufacturer’s production abilities if a conflict were to break out.

Renault’s Russian business AvtoVaz, which makes the Lada brand of cars, sources 20 percent of components necessary for making vehicles from other nations. If the Russia-Ukraine crisis worsens, two AvtoVaz factories will face difficulties in securing components.

Sourcing parts from outside the country might turn into an issue as Moscow has come up with a “Fortress Russia” program that seeks to minimize the nation’s links to foreign businesses in case its businesses and economy face sanctions.

Renault was “doing a study” to determine alternate sources for its car components, the company CEO Luca de Meo said to the Financial Times. “We are looking at this piece by piece, if it comes from China, it is not the same as if it comes from Germany or the US.”

Almost 90 percent of sales from AvtoVaz plants in Russia is accounted for by domestic demand. AvtoVaz is owned by Lada Auto Holding in which Renault has a 67.61 percent controlling stake. At Renault’s Moscow plant, roughly 40 percent of parts are imported.

U.S. President Joe Biden is reportedly convinced that Russian President Vladimir Putin has decided to invade Ukraine, according to recent remarks given during a press briefing.

“You know, look, we have reason to believe the Russian forces are planning to and intend to attack Ukraine in the coming week—in the coming days. We believe that they will target Ukraine’s capital, Kyiv, a city of 2.8 million innocent people,” Biden said.

Oleksiy Danilov, Ukraine’s top security official, has also blamed Russia for trying to provoke his country’s military to attack.

Renault had recently released its financial report for 2021 in which AvtoVaz’s revenues were shown to have grown in the past year. “AVTOVAZ’s revenue increased by 10.4 percent to €2,850m ($3225 million), mainly due to strong price increases and a product mix effect of +18.4 points,” according to a Feb. 18 press release.

“The LADA brand maintained its leadership in Russia with a market share of nearly 21 percent. LADA Vesta and LADA Granta sales ranked respectively at the 1st and 2nd place in Russia.”

The operating margin of AvtoVaz during the period rose by 106 million euros ($119.95 million) to 247 million euros ($279.52 million) as price increases offset the rise in the price of raw materials and negative currency effects. Overall, Renault made 967 million euros ($1.09 billion) in net income for the period compared to a loss of over 8 billion euros ($9.05 billion) in 2020.

“With these 2021 results, Renault Group reached a further step in its recovery. This performance is due to the early successes of the Group strategy, promoting value over volumes, and its strict financial discipline,” said Clotilde Delbos, CFO of Renault Group. For the first half of 2022, Renault expects a production loss of 300,000 vehicles given the semiconductor shortage.

Since the outbreak of the CCP (Chinese Communist Party) virus went global, supply chain disruptions have weighed down on the auto industry, with a shortage of semiconductors delaying production. The “mismatch in supply and demand” for chips is not expected to go away at least in the first half of 2022, according to a Jan. 5 report published by the U.S. Commerce Department that surveyed 150 companies.