Renault CEO Luca de Meo cautioned on Thursday that the automaker’s withdrawal from Russia presents a “very problematic scenario” for the firm, threatening profitability and sales as the company strives to expedite a multi-year recovery project.

In an internal video for staff, de Meo stated that Renault will prioritise employee safety as it considers options for its Russian operations in the aftermath of Moscow’s invasion of Ukraine. more info

Renault announced late Wednesday that it would reduce its operating profit and cash flow forecasts and is considering a non-cash writedown of 2.2 billion euros ($2.42 billion) to reflect the probable consequences of ceasing operations in Russia.

Renault is in the process of revamping its business in order to remain competitive as it transitions to electric automobiles. In February, the company recorded its first yearly profit in three years and stated that it aimed to increase operational profit margins to 3 per cent or higher this year.

Renault has more to lose than many other Western corporations because it is the global automaker with the most exposure to Russia. Over the last month, investors have reduced the company’s market capitalisation by 40 per cent.

The Russian Ministry of Industry and Trade announced on Thursday that talks were underway to determine the future of the carmaker’s Moscow plant, with a decision expected by the end of next week, potentially providing one of the first examples of what the government intends to do with Western assets.

French President Emmanuel Macron said he respected Renault’s decision and that companies may continue in Russia if their industry was not targeted by sanctions.

Speaking to reporters after a G7 and NATO summit on Thursday, Macron warned a “reputational risk” for companies that remain. Renault is 15 per cent owned by the French government. Renault’s decision came in response to harsh criticism from Ukraine’s President Volodymyr Zelenskiy.

Renault did not elaborate on how it would handle its withdrawal from its second-largest market, one of over 400 companies to do so.

Renault shares fell as much as 2.6 per cent in early afternoon trade before recovering some ground to settle down 0.8 percent.

Renault’s Russian partner Avtovaz, which manufactures the Lada and Renault car brands and is owned by Renault, announced on Thursday that it would construct new models without importing components and would seek to restore its supply chains. It imports roughly 20 per cent of its parts and raw materials.

A decade ago, global automakers saw Russia as a bright growth market with the potential to be one of the top ten vehicle-buying nations in the world.

The current restrictions, as well as previous ones imposed following Russia’s annexation of Crimea in 2014, have put an end to that idea.

Renault’s rescue strategy included combining its low-cost brands Dacia and Lada into a single business entity. Dacia’s vehicle platform was to be used to build Lada’s automobiles.

Lada was also a part of Renault’s cost-cutting strategy, as well as its huge push into small family automobiles. According to a source close to Renault, Dacia will remain profitable even without the economies of scale provided by the Lada brand.

“We think this strategic move will shift the attention of investors into the core operations of Renault, which have been largely restructured over the past years,” JP Morgan analysts said in a note.

According to Credit Suisse analysts, a Russian exit for Renault would be preferable to a “wait and see” attitude, even if it comes at a cost to the firm.

(Adapted from AutoNews.com)