Renault exits Wuhan car venture as months of lockdown to contain coronavirus puts it beyond any hope of catching up in China
- Renault will transfer its share in a joint-venture with Dongfeng Motor to its Chinese partner, without disclosing the price
- The French carmaker will refocus on making light commercial vehicles and electric vehicles in China
Renault has decided to bow out of making cars in the world’s largest vehicle market, as a three-month shutdown of its Wuhan assembly in the former coronavirus epicentre pushed the French carmaker beyond any hope of catching up with competitors in China.
Renault will transfer the 50 per cent stake in its venture with Dongfeng Motor Group to its Chinese partner, according to a statement to the Hong Kong stock exchange, where Dongfeng’s shares are traded.
The French carmaker, based in Boulogne-Billancourt in western Paris, will focus on producing light commercial vehicles at its Jinbei venture with China Brilliance Automotive in Shenyang, and electric vehicles such as the Renault City K-ZE sports-utility vehicle, it said.
“Given the downturn in the domestic market and Dongfeng Renault’s operation, shareholders intend to restructure Dongfeng Renault,” Dongfeng said. “The company intends to implement business transformation and upgrading with Dongfeng Renault,” it said, adding that the unit will stop engaging in business activities related to the Renault brand.
Infographics: Global carmakers and their venture partners in China
Based in the Hubei provincial capital of Wuhan, the epicentre of the viral outbreak in mainland China, the joint-venture had struggled with declining sales since 2018, when fewer buyers walked into showrooms for the first time after nearly three decades of breakneck growth.
Dongfeng Renault’s 2018 sales plummeted by 31 per cent to 50,112 units, failing to meet its 90,000-unit target by a wide margin. The carmaker sold a mere 18,500 cars last year in China, a plunge of 63 per cent from the previous year.
“The announcement reflects the trend in China’s car market over the past few years, which is fiercer competition, lowering utilisation of capacity, and widening losses for weaker brands,” said Ivan Su, an analyst at Morningstar.
On top of weakening demand amid a slowing economy, China’s car industry also faces the grave challenge of excessive capacity. Carmakers were operating at less than 40 per cent of their production capacity last year, according to the China Association of Automobile Manufacturers.
Challenges from overcapacity and higher competition will persist, Su said, as state-owned carmakers are unlikely to close down factories that would stoke unpalatable lay-offs and social instability in the economy.
The coronavirus pandemic, first reported in Wuhan in December, proved to be the final nail in the demise of the Dongfeng-Renault venture. The factory was shut for more than two months until the end of March, in compliance with a province-wide lockdown to contain the outbreak.
Hubei province, accounting for as much as 80 per cent of China’s confirmed coronavirus cases at its peak, is also the country’s fourth-largest automotive manufacturing base after Shanghai, Beijing and Guangzhou.
France has recorded 137,875 cases of infections of the Covid-19, the third-highest number among European nations, while death toll has reached 14,986 in the country.
Dongfeng Motor’s shares fell 1.4 per cent to HK$4.95 after Renault announced its exit, in their biggest one-day decline in five days. They have slumped 32.5 per cent this year, while the Hang Seng Index retreated 13.3 per cent.
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