Renault had for months been plotting to export a newfangled version of the Lada to the rest of the world.
Although realizing that ambition remained some way off, it would have capped the revival of a brand arguably more synonymous with the Soviet Union than any other and which Renault first took a punt on in 2007 after then chief Carlos Ghosn identified Russia as a promising market.
Encouraged by Russian President Vladimir Putin, Renault in 2012 lifted its stake in Avtovaz, the manufacturer of the Lada since the first one rolled off the production line in 1970, to a controlling one.
A decade on, its success in steering Lada through setbacks and market slumps has left Renault with a larger business in Russia than many other foreign companies, just as Putin’s invasion of Ukraine risks turning the country into a pariah state.
In contrast to some multinationals for whom the Russian market amounts to little more than a rounding error in their accounts, Renault has a local workforce of 40,000 and generates 10 per cent of its revenues there.
The carmaker has not commented on its intentions, saying only that it is monitoring the situation in Russia. The scale of Renault’s operations, alongside a lack of political pressure in France to beat a retreat, has left the group minded to try and stay, according to people familiar with the matter.
But as the corporate stampede from Russia grows, the commercial and reputational risks for the company, which counts the French government and Japan’s Nissan as its two biggest shareholders, are rising.
“People are underestimating the potential economic collapse [in Russia]this could be a complete breakdown, ”said Mark McNamee, Europe director at FrontierView, a consultancy that advises companies on macroeconomics.
“There’s pressure for companies not to be seen dealing with Russia at all,” McNamee added, pointing to a particularly strong move among US consumer brands to “self-sanction” and withdraw.
Renault has already been put on notice of the mounting economic strains in Russia. Its three plants, including one in Moscow that produces models under the Renault brand, have faced stoppages and struggled to source components as some suppliers cut ties with the country.
Avtovaz resumed production of some Lada models on Wednesday after a week-long pause at its vast Togliatti plant, which sits on the Volga river 1,000km east of Moscow. But all Avtovaz factories are set to be idled again from April 4 for 20 days as Renault brings forward a corporate vacation normally scheduled for the summer, while racing to stockpile electronic parts.
Semiconductors would be particularly hard to source within Russia, industry consultants said, even if Togliatti had its own extensive metal stamping operations to make some other components.
Within Russia there was “a lot of pressure on them to never stop again,” one person briefed on Renault’s operations said. The risk of a Russian countermove to seize assets was also an issue, they added.
Some other car plant operators in the country have received unannounced visits from local authorities to check they are still paying workers even when shut down, according to people familiar with the visits.
Since Renault first invested in Avtovaz in 2007, its workforce has shrunk from over 100,000 as the French group has sought to modernize assembly lines. Almost all workers are local except for 10 foreigners in top jobs or essential positions, such as Avtovaz head Nicolas Maure, and the group is reluctant to simply abandon its staff, people at Renault have said.
Visits from international employees that normally carry out quality control checks have been canceled, according to Renault unions.
Although smaller than it was, the size of Renault’s workforce means the stakes are high – both for the company and the Russian government. Its Togliatti plant, one of the world’s largest car factories, is so large that it used to operate its own hospital and remains a key source of employment for in the surrounding Samara province.
Long-running stoppages risk being very costly. “The question is production and how long do you pay the workers until you can no longer afford it?” said Philippe Houchois, an analyst at Jefferies.
A car brand that resonates far beyond Russia, the Lada has long been the best-selling one inside it, with its cheaper price helping to keep its market share at around 20 per cent, even as foreign rivals have pushed into the country over the last two decades.
Even in the Soviet era, the no-frills Ladas were one of Russia’s most successful exports. EU sales petered out over two years ago when vehicle emissions standards tightened, although the brand still sold new cars outside Russia, including in Kazakhstan and Belarus.
However, under chief executive Luca de Meo, Renault had been considering bringing a hybrid version of its Lada Niva back to western Europe by 2025, building on the revival of its sturdy off-road car first launched in 1977.
Although Renault’s plants have suffered from interruptions to production since the invasion, there are signs that demand is proving to be more resilient – even as the Russian ruble has tumbled in value.
“They’re buying up everything,” said one car dealer in Moscow, pointing out that this was far from business as usual.
“In my view, they mainly want to invest money, buy anything but invest before [the rouble] devalues entirely, ”he said. “Those with more money buy apartments, the ones with less money buy cars.”
Fears that spare components for foreign cars would eventually run out were sharpening the Lada’s appeal, the dealer added. Some people have said they keep cars in underground parking or in garages rather than in the streets because of concerns they will be stolen for parts.
“These are Russian products made by Russians for Russia,” an official in the French government told the Financial Times, adding that it was too early to consider a radical halt to production or a departure. Japan’s Nissan, Renault’s alliance partner, declined to comment.
It is a position the French government is maintaining despite Renault holding a 68 per cent Avtovaz stake alongside Rostec, a defense and industrial group run by a longtime Putin ally Sergei Chemezov, who has been under US-imposed sanctions since 2014.
French President Emmanuel Macron, who has held regular talks with Putin since the invasion and urged him to establish a ceasefire, has also stressed that the west was not at war with the Russian people.
His government has not pressured companies to depart, even in private exchanges, several people familiar with the matter have said. That includes TotalEnergies, the French company facing the most scrutiny over its continued Russian presence, after oil and gas rivals BP and Shell announced plans to leave.
French companies are among the largest foreign employers in Russia, with 160,000 local staff in total, according to French officials. Food producer Danone, supermarket group Auchan, DIY retailer Leroy Merlin and lender Société Générale also have large operations.
“The question of whether these companies should leave [Russia] is certainly there, ”said Tatiana Kastouéva-Jean, head of the Russia center at French think-tank Ifri. “Some French companies have been resisting more than others, but many are more local and have more to lose.”
Germany’s three major car manufacturers, VW, Mercedes and BMW, suspended their sales or operations within days of the invasion. The trio sold less than 300,000 vehicles in the country last year, a fraction of the 13mn cars they delivered worldwide.
That is less than the total of Ladas turned out by the Renault group alone, while the company sold over 482,000 cars in Russia, including under other brands in 2021, a hefty 17 per cent chunk of its total output.
Avtovaz has € 3.1bn of assets, according to Renault accounts. Jefferies analyst Houchois said Avtovaz activities were largely ringfenced, limiting the fallout for the wider Renault group. “You could wipe out the value to zero in your accounts and be able to deal with that,” he added.
Nevertheless, Renault’s shares have underperformed other French blue-chip companies since the invasion, falling by more than 20 per cent.
Its Russian dilemma risks weighing on De Meo’s broader ambitions at Renault after the company, hit by corporate scandals and then the disruption from the coronavirus pandemic, only edged back to profit last year after two years of losses.
“I’m anxious for the group,” said a high-level person at Renault, adding that he thought the company should stay after spending years of investment and energy in Russia.
Additional reporting by Domitille Alain in Paris, Joe Miller in Frankfurt and Eri Sugiura in Tokyo