Renault has warned of a potential supply chain crisis for its plants in Russia if the dispute with Ukraine deteriorates.
The French carmaker said its Russian business AvtoVaz could face problems securing components for its two factories in the country.
About 90 per cent of the sales from the AvtoVaz plants, which make the Lada brand, stay in Russia, and the company is financed largely from the country, chief executive Luca de Meo said on Friday.
But “potentially there could be another supply chain crisis linked to parts that would have to come from abroad”, he told investors. As well as two AvtoVaz plants, the company owns a dedicated Renault facility in Moscow.
Russian president Vladimir Putin has tried to shelter the country’s economy and industries from potential sanctions through a “Fortress Russia” programme that reduces links with outside businesses.
However, car plants such as Renault’s still rely heavily on imported components, because of the scale of the global business.
De Meo told the Financial Times that Renault was “doing a study, just a preventive move” to assess where else it can source parts for the plants. About 20 per cent of parts for the AvtoVaz plants are imported, while it is close to 40 per cent for the Renault Moscow facility.
“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,” he said.
The supply chain warning came as Renault reported its first annual profit in two years with cost-cutting and a focus on its more lucrative models offsetting the global chip shortage that has beset the car industry.
The French carmaker’s net income was €967mn last year, a sharp reversal from an €8bn loss in 2020, when the lockdowns designed to stem the spread of coronavirus hammered manufacturers.
The group, which also lost money in 2019, said on Friday that a turnround strategy based on delivering “value over volume” was ahead of schedule.
Some parts of the plan were two years ahead of schedule, de Meo said, and the company would “go above the initial €2bn target” for cost cutting.
“All this is the result of titanic work in the past 18 months,” he added. “Renault Group largely exceeded its 2021 financial targets, despite the impact of semiconductor shortages and rising raw material prices.”
About 85 per cent of vehicles were higher specification models, leading to a pricing increase of 6 percentage points. The higher mix improved profits by €1.1bn, while increased productivity boosted earnings by €850mn.
Higher raw material prices cost the group an additional €470mn.
Its profit margins hit 3.6 per cent last year, ahead of the 2.8 per cent it had forecast, and the group is targeting 4 per cent this year. Sales rose 6 per cent to €46.2bn, as the carmaker benefited from the reopening of major economies.
However, Renault warned it still expected to produce 300,000 fewer vehicles this year due to the chip shortages that dogged the industry over the past year.
About a third of its vehicles sold in Europe last year were hybrid, helping the group meet CO2 targets set by EU authorities.
It plans to launch 15 electric cars by 2025, with the aim of selling only battery vehicles in Europe by the end of the decade.
The group is exploring carving out its engine and hybrid business into a separate unit, based outside France, de Meo said on Friday. The potential split echoes Volvo Cars, which separated its engine cars and battery cars divisions into two units.
Source: Economy - ft.com
