France’s Renault SA (RENA.PA)said on Monday it is looking to revive business in China by forming a hybrid vehicle joint venture with Geely Holding Group (GEELY.UL), a year after it ended its previous operation in the world’s largest car market.
The two companies have signed a framework agreement to set up the joint venture, which would make and sell Renault-branded petrol-electric hybrid cars in China using Geely’s technologies, supply chains, and manufacturing facilities while Renault would focus on sales and marketing.
Reuters reported the plan earlier on Monday, citing people familiar with the matter.
As part of the partnership, the two automakers also agreed to explore a joint localization of Geely’s Lynk & Co-brand hybrid vehicles in South Korea where Renault has been manufacturing and selling cars for more than two decades.
The venture would focus on China and South Korea initially but would likely be expanded to cover fast-growing Asian markets.
Geely and Renault are also looking at developing full electric battery cars for the venture, one source familiar with the matter said.
The new venture is modeled on an EV-focused venture Geely set up in 2019 with Daimler (DAIGn.DE), which plans to manufacture in China and sell Smart-brand EVs based on Geely technology using Daimler’s global sales network.
The Geely-Renault venture, however, would be completely separate from Geely’s venture with Daimler.
For Geely, China’s biggest local automaker by sales, the newest new joint venture would strengthen its strategy to use partnerships with other automakers to share technologies, supply chains, and manufacturing, which reduces development costs of EV and other future mobility technology.
For Renault, the partnership would help the French automaker rebuild its presence in China after it ended a joint venture with Dongfeng Motor Group (0489.HK) in 2020.
Renault and Geely would make the cars “in Geely’s existing factories” with an aim to eventually export the vehicles, one document read. However, one source said they were unlikely to immediately disclose which plants production would take place.
The proposed Renault-Geely joint venture could be controlled by Geely, one of the sources said, in contrast to Geely’s Smart joint venture with Daimler, in which both companies have an equal share.
Renault and its global alliance partner Nissan Motor Co (7201.T) had the same Chinese partner Dongfeng before the Renault-Dongfeng joint venture was dissolved.
Renault and Nissan also have long designed, produced, and marketed cars jointly that share platforms and other vehicle components to reduce manufacturing and other costs.
It was not immediately clear how Renault’s new partnership with Geely would impact the Renault-Nissan alliance.
Two Nissan management leaders told Reuters they were unaware Renault was in negotiations with Geely. They said Nissan could possibly benefit if it tapped into Geely’s supply chains but it was too early to assess the impact.
Automakers are keen to use petrol-electric hybrid vehicles, which have better fuel efficiency than all-petrol counterparts, to meet increasingly tougher auto regulations around the world. These hybrid vehicles, which drivers cannot charge with electricity directly, are different from plug-in hybrid cars.