France’s Renault, China’s Geely sign $8.8bn powertrain tie-up

BLOOMBERG

France’s Renault SA has formally signed a joint venture agreement with China’s Zhejiang Geely Holding Group Co to set up a new combustion engine and hybrid powertrain company.
The move follows a letter of intent signed between the three parties in March as the joint venture seeks to pool resources to work on hybrid technology and synthetic fuels to power 80% of the global internal combustion engine and hybrid market, the companies said.
Renault has been revamping its corporate structure to tackle the shift to electric cars and bolster profits. As part of that plan, the company last year merged its combustion assets with China’s Geely’s to amass scale and cut costs. The new entity, dubbed Horse by Renault, started operating this month.
Geely’s subsidiary Aurobay Technology Group, which provides engine development for Geely and Volvo, will be transferred to the new venture, according to a filing to the Hong Kong Stock Exchange.
The tie-up is worth around €8 billion ($8.8 billion) through the combination of Renault and Geely’s contributions, and Geely estimates it will record an unaudited gain of about 9.78 billion yuan after the disposal of the subsidiary, the filing showed.
The maker of Clio cars and Geely will each hold 50% equity stakes in the new project, which will establish its headquarters in the UK. Regional hubs in Madrid and Hangzhou in China will operate in the meantime.
The venture, which doesn’t have an official name yet, will have 17 plants and 19,000 employees and the capacity to supply more than 5 million internal combustion, hybrid and plug-in hybrid engines annually.
The transaction is expected to be completed in the second half of this year, subject to approval from antitrust and foreign direct investment authorities.
While sales of fully electric vehicles are taking off, combustion-engine and plug-in hybrid autos will still be in demand for years to come, especially in developing countries. Earlier this year, European Union rules to effectively ban sales of new combustion-engine cars from 2035 were delayed for weeks after a last-minute push by Germany to secure allowances for e-fuels.
Among the concerns regarding the bloc’s all-out electric vehicle push are significant job losses in the sector and a lack of infrastructure to support mass adoption of EVs.