Renault Group’s financial turnaround could be jeopardized by the automaker’s exposure to the Russian market, according to Fitch Ratings.
Potential losses from operations in Russia could lead Renault to burn cash for the next two years and delay its recovery from the pandemic, the credit rater said in a report.
The company has the highest exposure to the country among European automakers and suppliers that Fitch tracks, generating an estimated 10 percent of revenue and 12 percent of operating margin from Russia last year.
The “headroom” Renault has to maintain its BB credit rating -- the highest speculative grade -- is “already minimal,” Fitch said.
The warning could add to investor concern about Renault’s reliance on Russia. The company has a 68 percent stake in AvtoVaz, the maker of Lada brand vehicles, and produces cars at another plant near Moscow. Renault shares have plunged since Russia invaded Ukraine.
CEO Luca de Meo has put Renault on a slow path to pre-pandemic earnings performance since taking over in mid-2020. The company registered a record annual loss for that year, when it took out a state-backed loan that the French government’s auditor has described as essential to its survival.
Renault has not said how it plans to respond to Russia's invasion of Ukraine, although its factories in Russia have been paused due to component shortages. Any action would be complicated by the French government's stake in the automaker.
The recovery in profitability and cash generation de Meo has overseen “could be derailed by a slower-than-expected rebound in new-vehicle sales and protracted supply-chain issues,” Fitch said. Auto margins, expected to reach 3 percent by 2024 largely due to cost-cutting, are now “more likely to take longer to fully recover.”