(Bloomberg) -- Renault SA agreed to sell its majority stake in Russian carmaker AvtoVaz to a state-run automobile research institute in what is essentially a nationalization of the unit by government.
The Central Research and Development Automobile and Engine Institute, known as NAMI, which reports to Russia’s industry ministry, will receive the stake. Renault also sold its Avtoframos car plant near the capital to the Moscow City government, the company said Monday.
The carmaker, who confirmed its annual outlook, has the option to buy back its interest in AvtoVaz during the next six years.
“We are making a responsible choice towards our 45,000 employees in Russia, while preserving the group’s performance and our ability to return to the country in the future,” Chief Executive Officer Luca de Meo said in a statement.
The agreement marks the end of an era for Renault in Russia, where the automaker owned 68% of AvtoVaz -- maker of the best-selling Lada brand. Renault’s roots in the country, which grew to become its second-biggest market, stem from a $1 billion deal sealed in 2007 between former leader Carlos Ghosn and a top ally of Russian President Vladimir Putin.
Read more: A $1 Billion Deal With Putin Traps Renault in Russia Quandary
Withdrawal will carry financial pain. Renault cut its outlook in March for this year both for profit margin and free cash flow due to the risks posed by the war on its Russian operations. The company on Monday confirmed it will take a writedown in the first-half for the value of the Russian business, which was 2.2 billion euros ($2.3 billion) at the end of last year.
Moscow’s Mayor Sergei Sobjanin said Renault’s plant near the city will start to produce Moskvitch cars there, a model that dates back to Soviet times, according to his blog. AvtoVaz’s Togliatti plant will continue to make Ladas, Russia’s Industry and Trade Ministry said in its Telegram account.
Read more: Renault Shuts Down in Russia and Weighs Quitting Venture
The Russia debacle comes at a bad time for the carmaker, which was already struggling to turn around following the crisis stemming from Ghosn’s 2018 arrest in Japan and the pandemic.
The French carmaker came under strong pressure from investors during the first weeks of the war as the most exposed vehicle manufacturer to Russia. It was also called out by Ukrainian President Volodymyr Zelenskiy for supporting Putin’s “war machine” by delaying a pullout.
Renault had 45,000 staff in Russia so the transfer will leave a big hole in the automaker’s operations. The Lada -- a model dating back to the Soviet era -- was part of Chief Executive Officer Luca de Meo’s strategy for affordable passenger cars along with the Dacia brand.
De Meo is now considering a structural overhaul of Renault by hiving off electric-vehicle and combustion-engine entities.
The other partner in the AvtoVaz venture is Rostec State Corp., a Russian government-owned defense conglomerate headed by Sergey Chemezov, a close Putin ally.
In the months since the start of the war, Renault along with other foreign manufacturers have halted plants, blaming their inability to get crucial imported parts needed for production.
(Updates with Renault CEO comment in fourth, Russia mayor comment in eighth paragraph)
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