Renault's partnership with Geely in China raises questions for Nissan

TOKYO — Alliance partners Nissan and Renault are fine-tuning their strategy of carving up the world into spheres of influence, but Asia is a new bone of contention as Renault returns to China.

Under a deal the partners announced last year, the French automaker quit passenger-car sales in China and handed the market over to its Japanese partner Nissan.

But now, a year and half later, Renault seems to regret retreating from the world's biggest market.

Last week, Renault said it plans to make another run at China, this time with Geely Holding Group, China's biggest domestic player, instead of Nissan.

The proposed Renault-Geely joint venture will build and sell hybrids in China and, importantly, also will explore using Renault's assembly plant in South Korea to produce hybrids for Geely's Lynk & CO brand.

Still unclear is what this plan means for Renault's three-way alliance with Nissan and junior partner Mitsubishi Motors.

People close to Nissan management said Nissan still needs deeper discussions with Renault about the ramifications and possible benefits.

A Geely tie-up would help Renault tackle several problems, including both its lack of access to the China market and unused capacity at its struggling South Korean operation. But to some, the move also raises questions about Renault's intentions toward its 21-year alliance with Nissan, which has frayed since the 2018 arrest and ouster of former alliance Chairman Carlos Ghosn.

"This looks like the beginning of an exit strategy," said one former high-level Renault executive, speculating about a rebalancing of the alliance.

In 2019, Renault stunned Nissan by attempting a merger with Fiat Chrysler Automobiles without involving its Japanese partner. That gambit eventually failed, opening the door for PSA Group to combine with FCA instead. But that attempt spurred questions about Renault's drive for new allies.

Geely, for its part, has been aggressive in snapping up foreign partners. Volvo and Lotus are among its constellation of holdings. In 2018, Geely took a surprise 9.7 percent stake in Daimler for $9 billion.

But to Renault Chairman Jean-Dominique Senard, teaming with Geely may be more about solving Renault's South Korean conundrum than about reconfiguring its alliance with Nissan.

And Renault's woes in South Korea were partly Nissan's making.

Renault's Korean subsidiary, Renault Samsung Motors, used the capacity of its Busan factory to make vehicles for Nissan, including the Rogue crossover for export to the U.S. But Nissan pulled that production in-house to deal with its own overcapacity issues.

In May 2020, Nissan said it would withdraw from selling cars altogether in South Korea, where local players Hyundai and Kia dominate the domestic market with a combined 70 percent share.

"The short-term intention is really to find a solution for the Korean plant," said one person familiar with Senard's thinking on the Geely deal. "It's a solution to keep this factory alive."

Meanwhile, the China plan helps Renault reestablish a toehold in a market where it has long struggled.

Last year, Renault broke with its former local partner Dongfeng Motor. With Geely, it is returning with the assistance of a Chinese automaker that has true global ambitions.

Geely and Renault said they will introduce Renault-branded hybrid vehicles in China.

In pairing with Geely, Renault may appear to miss out on many of the purchasing and product development synergies that are the basis of the Renault-Nissan alliance. Nissan is a top runner in the China market and continues a successful tie-up with Dongfeng as its local partner.

But adding Geely to the wider mix could bring benefits to Nissan.

Among foreign automakers in China, Nissan is somewhat unusual in having Dongfeng as its only Chinese partner. By contrast, China market rivals such as Toyota and Volkswagen work with two local companies. Down the road, access to a potent partner such as Geely through Renault could help Nissan hedge its bets while broadening its supply chains and distribution channels.

News about joint Nissan-Renault projects has been scant since the alliance partners announced what they call a "leader-follower" go-your-own-way strategy last year. The idea was for the individual alliance partners to take the lead on products and markets where they have a competitive advantage. However, since then, Renault, Nissan and Mitsubishi have been racing to reverse waves of red ink and reboot flagging sales.

But Nissan CEO Makoto Uchida is unfazed by the Geely announcement and does not see it affecting ties between Nissan and Renault, a person familiar with his thinking said. The two companies are progressing with shared engineering for upcoming electric vehicles. And they are even finally using the same battery supplier, Envision AESC.

Renault announced plans in June to partner with Envision AESC on a new battery plant in Douai, France, to open in 2024. And in July, Nissan said the battery maker would build another factory in Britain to supply enough power packs for 100,000 Nissan EVs a year.

New initiatives for alliance cooperation are expected to be a focus of the new long-term corporate vision that Uchida is expected to unveil in October, people close to the matter say.

"People would really like to do more," said one person close to Nissan's board. "But as a matter of reality, each company has had to focus on its own priorities and on resolving its own issues."