Renault Is Going After China

French group has signed its first big deal since exiting its main joint venture last year. On Monday, Renault (OTC:RNLSY) revealed it will partner with Geely Automobile Holdings Limited (OTC:GELYF), the Chinese owner of Sweden's Volvo Cars, to tap into China's rapidly growing electric car market. Together they will share resources and technology to sell hybrid vehicles in Asia.

A New Chapter For Renault

In April last year, Renault ended its lossmaking petrol car joint venture after the pandemic worsened two years of declining sales. Breaking ties with China's Dongfeng Motor Group (OTC:DNFGF) was a rare example of an international automaker withdrawing from the world's largest car market. Now, it will make Renault-branded hybrids with Geely who will be tasked with branding and customer service. The partnership will also apply in South Korea, making these vehicles on platforms from a hybrid-focused brand, Lynk & Co, that wasfounded by Geely in 2016.

Geely- China's Largest Domestic Car Brand

Geely also has a minority stake in Germany's Daimler (OTC:DDAIF) (OTC:DMLRY). It is China's largest privately owned automaker by vehicles sold and it is going full forward towards the EV era. Over the past year, Geely has opened up its electric car manufacturing architecture even to the internet group Baidu (NASDAQ:BIDU). It has also launched a premium electric car brand to try and take on no other than the industry leader itself, Tesla Inc (NASDAQ:TSLA), on its home turf. Geely responded rapidly to the pandemic by securing supply and restarting production ahead of rivals, allowing it to retain its spot as China's largest domestic car brand by passenger vehicles sold in 2020.

China Is The Place To Be

EV sales, which include battery-powered and plug-in hybrids, have accelerated rapidly in China since mid-2020 following a year-long decline owed to the withdrawal of governmental subsidies. The success of Tesla and local EV makers such as Nio Inc (NYSE:NIO), Li Auto Inc (NASDAQ:LI), and Xpeng Inc (NYSE:XPEV) has led to fierce competition, not to mention that global automakers are investing heavily to catch up in the EV race and appeal to Chinese consumers. Even Volkswagen's (OTC:VWAGY) electric models gained some traction after a slow start, delivering 5,800 IDs in July, according to Reuters. After more than three years of staying flat at 5% of total car sales, EVs rose to about 10% of sales in China over the first half of 2021 with Beijing aiming for them to contribute 20% to total car sales by 2025.

For Renault, this move is also a reversal of a strategy put in place in 2016 by Carlos Ghosn which implied a small presence in China confirms a new era is on the horizon, hand-in-hand with what seems to be the right partner for the occasion.

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