SHANGHAI -- Facing a slumping Chinese market and new challenges from domestic automakers, Renault Group is relying on light-commercial vehicles and electric cars to meet ambitious sales targets in China.
Renault has set a goal of selling 550,000 vehicles in China, the world's largest auto market, by 2022. That would represent an increase of more than 150 percent over 2018, when it sold 216,000 vehicles, including 163,000 mostly LCVs produced by its joint venture partner, Jinbei Brilliance.
First-quarter results show the challenge facing Renault in China, where overall passenger car sales have fallen for nine consecutive months. Group sales were down 21 percent, to 42,687 units -- but Renault brand sales fell by 64 percent, to 6,306. Jinbei sales held steady at 36,381, a gain of 0.4 percent.
"We arrived very late in China," said Guillaume Sicard, head of sales and marketing for Renault's China region. "Organic growth isn't possible, so our joint ventures will accelerate growth."
It wasn't until 2013 that the company teamed up with its first joint-venture partner, Dongfeng Motor Group, in an entity known as DRAC. Renault started producing its own models, the Kadjar and Koleos SUVs, at a new plant in Wuhan in 2016. Last year, the factory ran at about one-third of its annual capacity of 150,000, but a new car will be added to production lines this year, DRAC officials said, without offering more details.
Renault has used DRAC as a jumping-off point for three more initiatives: eGT, a joint venture to develop electric cars, with Dongfeng holding 50 percent and Renault and Nissan each 25 percent; Renault Brilliance Jinbei, a joint venture focusing on LCVs; and a deal expected to close by the end of this year for a "significant stake" in JMEV, the electric vehicle subsidiary of the manufacturing conglomerate JMCG.
Renault has also just opened a global design center in Shanghai, joining other centers in Romania, Brazil and India. The aim is not necessarily to create clean-sheet designs for China, but to ensure that European and rest-of-world models meet the needs of Chinese buyers, who prefer, for example, extended-wheelbase vehicles with more rear-seat legroom.
Renault sells three conventional SUVs in China, the small Captur, the compact Kadjar and the midsize Koleos, but sales have slumped, which Sicard attributed to a lack of new products.
However, the market is poised for a profound shift to electrification, and Renault expects to benefit from that. Electric vehicle sales rose 70 percent last year in China, to about 760,000 -- and the government forecasts that figure to grow to 2 million in 2020, 7 million in 2025 and 16 million in 2030.
Big ambitions for electric K-ZE
Renault's key debut at the Shanghai auto show last month was the City K-ZE, an electric version of the Kwid small crossover sold in India and Brazil. Sales will start in the fourth quarter, under five different brands: Renault; Venucia (a Nissan-Dongfeng sister brand in China); and three brands under Dongfeng, Renault's main joint venture partner in China. Renault officials said only that pricing would be competitive with similar electric minicar-sized vehicles that sell for about 70,000 yuan (9,000 euros).
Renault would not say what sales expectations were, but the K-ZE will be produced as part of the new eGT joint venture in Dongfeng's factory in Shiyan, China, which has a capacity of 120,000 units a year.
Francois Provost, head of Renault Group operations in China, said the K-ZE's competitive advantage is that it is the first minicar-sized EV for China market produced by a joint venture. "There's no compromise on quality, reliability or development," he said at the Shanghai show.
The K-ZE's 26.8 kilowatt hour battery delivers 33 kilowatts of power and 125 newton meters of torque. The car can be fully charged in four hours on an AC circuit. In fast-charging DC mode, it takes 50 minutes to get to an 80 percent charge, Renault says.
Range will be 250 km (155 miles) in real-world conditions, Renault officials said at a media test drive at Renault-Dongfeng's factory in Wuhan, China. Officially range is listed at 271 km under the NEDC cycle.
The K-ZE's importance to Renault goes beyond sales volumes. Under rules announced by the Chinese government last autumn, automakers that produce more than 30,000 vehicles annually will have to achieve a level of 10 percent New Energy Vehicle credits, as determined by a formula based on production of plug-in hybrids and electric vehicles.
Credits can also be bought and sold among automakers. Renault officials say that the credits earned by the K-ZE, for all brands, will go to the main Renault-Dongfeng joint venture and then be distributed across brands to achieve the required level.
The K-ZE is also crucial to comply with China's electric vehicle subsidy rules for 2019. Subsidies are being sharply cut across the board -- an average of about 65 percent, according to a report from analyst firm Alliance Bernstein -- but at a minimum, EVs will need a range of at least 250 km to qualify for any government help.
Sicard said it was a "guessing game" as to how the cuts in subsidies and the credit system would affect the EV market. "The government is doing it to speed up EV development," he said, adding that requirements on range and battery power were meant to ensure that only better-quality products remained on the market.
The key question, he said, is whether automakers or consumers will absorb the reduction in subsidies, with an average cut of about 4,000 euros per vehicle. "There is a lot of uncertainty," he said.
An expanding van market
Renault's other main focus in China is its joint venture with Brilliance Auto, which sells buses, vans and minivans under the Jinbei brand -- and will soon add the Renault brand. Renault holds 49 percent of the shares but manages operations.
The joint venture aims to modernize money-losing Jinbei, which has about 100 different models of minibuses and minivans. Under a turnaround plan, a new logo has been developed that combines elements of Renault's "lozenge" and Jinbei's shield; a network of dealers is being developed on Renault's European template; and sales and marketing are focused on social media and China's all-encompassing digital platforms such as Alibaba and JD.com.
New and coming products include three EVs a large Renault van based on the Master, and a SUV for the Jinbei brand. Thierry Plantegenest, vice president for global LCV sales and marketing, said the van market was poised to expand in China, as online commerce grew in the country's dozens of cities with populations of 1 million to 3 million people.
Given the weakness in China's auto market and the uncertainty surrounding EV sales, Renault officials are bracing for more bad news in 2019. "This year is going to be difficult for us," Sicard said, "until September or October, when we start selling the K-ZE."