As automakers prepare for an electric future, China's Geely on Tuesday placed a bet on gasoline engines being around for years to come by agreeing a joint venture with Renault that will also include the legacy engine business of Geely's Volvo Cars.
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The 50-50 venture, covering gasoline engines and hybrid technology, will aim to maximise sales by also supplying other automakers.
While that will cut costs and help Renault free up resources to invest in its electric business, some analysts said the logic appeared somewhat different for Geely.
"We wonder if there is a broader (Geely) plan to consolidate assets for internal combustion engines?" Bernstein analysts wrote in a client note. "There may be an opportunity to bring together leading assets ... and corner this 'unloved' part of the market, which will need to function for decades to come."
The preliminary agreement is part of a radical reshaping of the auto industry as it shifts towards cleaner driving technologies, but also underscores the different strategies carmakers are adopting.
For Renault, the venture is part of a major overhaul being announced on Tuesday that will see it separate its activities into five businesses, including an electric vehicles unit that it plans to list next year while retaining a majority stake.
The French carmaker is also trying to revamp its alliance with Nissan Motor Co., aiming to convince its Japanese partner to invest in its new electric unit. Nissan reiterated on Tuesday it was considering such a move.
Ford Motor Co. has also begun separating its operations into electric, combustion engine and commercial vehicles, though Stellantis has rejected such a move as traditional automakers grapple how best to compete with Tesla.
"We are creating independent businesses, focused on structurally more profitable activities, open to external investments, each built around an indigenous set of technologies," Renault CEO Luca de Meo told investors.
For Geely, the deal extends its pattern of building partnerships to expand beyond China. It has a stake in Mercedes-Benz and also owns Sweden's Volvo Cars
As part of Tuesday's deal, Volvo Cars will divest its 33% stake in its Aurobay joint venture with Geely. That unit will become part of the Geely-Renault venture.
The joint venture will employ 19,000 people at 17 powertrain factories and three research and development hubs, Geely and Renault said, adding they expected to reach a final agreement and launch the new company in 2023.
The deal follows at least three months of negotiations, a person with knowledge of the terms told Reuters.
The new company will be based in London, said the person, who was not authorised to speak to media and declined to be identified. Renault and Geely will each hold 50%, the companies said in a statement that did not detail other financial terms.
The outcome of Renault's talks with Nissan remain an open question, however. Nissan has said it is considering an investment in Renault's electric venture.
However, Nissan has raised concerns about the treatment of intellectual property, including battery and powertrain technology, in its talks with Renault and has indicated those concerns extend to any partnership the French automaker strikes with Geely, people with knowledge of the discussions have said.
Renault and Geely said they expected their new joint venture would supply internal combustion engines and hybrid powertrains to both Nissan and the junior partner in Renault's existing alliance, Mitsubishi Motors.
The venture would have the capacity to supply about five million engines and hybrid systems per year once operational, they said.