After the Franco-Japanese alliance partners’ exit from Russia, the focus is now on India as they plan to reintroduce a new platform CMF-B and join the growing mid-size SUV market.
23 Nov 2022 | 22936 Views | By Ketan Thakkar
Someone’s loss is someone’s gain and that’s how it works in business. In the wake of the mass exit of businesses from the Russian market and the Indian market scaling a new peak, Renault Nissan — the Franco-Japanese alliance partners are set to announce their next phase of investment in ...
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Someone’s loss is someone’s gain and that’s how it works in business. In the wake of the mass exit of businesses from the Russian market and the Indian market scaling a new peak, Renault Nissan — the Franco-Japanese alliance partners are set to announce their next phase of investment in the country in weeks. Autocar Professional has learnt that a sizable investment sum of close to $500 million is at the final stages of approval.
The investment will go into localisation of CMF-B of common module family B architecture, which is likely to spawn out half a dozen vehicles between both brands with a high degree of localisation from India.
Renault will be bringing in the all-new Duster SUV, the seven-seater Bigster SUV — elder sibling of Duster — and a mid-size EV, whereas Nissan is going to get its own version of a mid-size B-segment SUV, a C-segment SUV and an EV, sources said.
Just like with some of its other models, the Renault Nissan alliance is expected to use India as a hub for exports with the new CMF-B platform in order to build economies of scale which the Oragadam plant with an installed capacity of 4,00,000 units, desperately needs.
There are multiple business cases being explored for volumes ranging from 1.5 lakh to 2.5 lakh units per annum to make the fresh investments viable.
To be sure, electric vehicles have been part of Renault Nissan’s India roadmap. But there appears to be a shift in focus. Renault had earlier explored the possibility of bringing in the Kwid EV into India, but with a strong acceptance for EVs in the Rs 15 lakh to Rs 25 lakh price bracket, it will instead attempt a B segment SUV EV in the future.
The localised products are set to hit Indian roads only by 2024-2025. Till then both the brands will rely on CBU (completely built unit) imports and CKD (completely knocked down) models to sustain customers’ interest in the brand.
According to sources, the Arkana, the Megane EV are a couple of options that Renault India may opt for in 2023, but the new battery norms by the government may be a hurdle for the company’s CBU plans for EVs. Nissan Motor India has already announced that it is studying the likes of X-trail, Qashqai and Juke for the Indian market.
The announcement is expected to happen at a time which closely follows both partners exiting the Russian market in the wake of the Ukraine- Russia war.
Moving up to cater to market needs
The core of Renault-Nissan alliance in India has been on the compact low-cost CMF-A architecture, which was conceptualised under its high-profile erstwhile Chairman Carlos Ghosn.
But after his exit, both Renault and Nissan have announced their shift towards the more profitable B- and C- segment vehicles globally, particularly SUVs. This shift in the global trend created a significant disconnect between the Indian market and the Alliance's vehicle architecture that was built for the low cost segment.
The sharp recovery of the Indian market after Covid-19 which saw the core of the market shift gradually upwards towards higher priced vehicles and SUVs gave confidence to the global leadership of both Renault and Nissan to relook at India with fresh investment that would be in sync with global trends.
The CMF-A platform will continue to remain a critical pillar especially for Renault, with the troika of Kwid, Kiger and Triber already bringing in almost one lakh units annual sales but fresh investment will be brought in for the CMF-B platform which will enable alliance partners to cater to a wider customer base and participate in the growing segment of the market, which has a potential to deliver better margins.
Already, there have been several visits to India by the Nissan Motor's board members of the AMEIO region (Africa, Middle East, India, Europe and Oceania) who have visited the Chennai factory. There have been some high-profile visits from the Renault side too.
In an email response to Autocar Professional, a Nissan Motor spokesperson said, “We do not comment on the speculations.” A Renault India spokesperson also declined to comment.
Core Alliance Market India is amongst the very few markets where the Renault Nissan alliance has an equity partnership. Renault-Nissan Alliance is a manufacturing JV with Nissan holding 70 percent equity, whereas the research and development centre, Renault Nissan Technology Business Centre India, has equal equity participation from both Renault and Nissan.
Given that Nissan has a bigger equity stake in the market, there is strong backing from Ashwani Gupta, the global COO of Nissan Motor as well for this next phase of investment. In the past, Gupta had stated that Nissan may even explore a gigafactory in India to serve the global market needs for electrification, hinting at how the Japanese car maker sees India as a critical base for exports in the future.
With the exit from Russia, both Renault Nissan may be reallocating the funds for expansion in India said a company source. Both Renault and Nissan sold their factory in Russia earlier this year for a token amount of one Rouble to the Putin government. Nissan President and CEO Makoto Uchida had said in a statement that his company did not give a dollar value for the sale but would log a 100 billion yen ($680 million) ‘impact’ from its exit from the Russian market. The terms of the sale also give Nissan the option to buy back its Russian business within the next six years if the situation was conducive enough to re-start the business in that country. Prior to the exit, Nissan’s €2.2billion Russian business also included a 67.69 percent stake in Avtovaz, which produces the popular Soviet-era car brand Lada. This was sold to NAMI (the Central Research and Development Automobile and Engine Institute).
Turnaround Story
Having pioneered the B-segment soft roader SUV market with Duster more than a decade ago, the French car maker had shifted focus on the low-cost mass market segment with the CMF-A architecture. Even as Renault was building volumes in India with Kwid, Triber and Kiger, the margins were too low and with B0 platform products — Lodgy, Captur — failing to take off, the overall operation was losing money.
High costs, a lower operating leverage at the Chennai factory and Covid-19 compelled the alliance partners to shut one manufacturing line, discontinue the Datsun brand and severely cut costs to stay afloat. Around 2020, Renault had started taking critical calls to exit unprofitable segments. The company's decision to exit China a few years ago meant, India will get relatively higher importance. For sure, as the attention got bigger, so did the pressure to make money.
Volume-wise India was always on the radar, but the loss-making operation did not sit well with the parent which put the brakes on a further infusion of funds into the India operations. This led to the axing of the Duster, a popular model that did not get a refresh for a significantly longer period of time, just as the likes of Hyundai, Maruti and Kia started making major inroads in the B-segment SUV market.
After Venkatram Mamillapalle took charge as Country Chief Executive Officer and Managing Director, Renault India took several critical calls to right-size operations, cut costs, reduce marketing spends to inch closer to profitability. It was a similar story for Nissan under Rakesh Srivastava, who had to prune the workforce, product portfolio, marketing costs and turn around Nissan’s fortunes with just one compact SUV Magnite.
The gamble paid off with the Magnite holding steady volumes combined with Sunny sedan exports to the Middle East for Nissan and the Kwid-Kiger-Triber troika of CMF-A cars for Renault bringing in close to one lakh annual volumes. As a result, the Renault-Nissan alliance has been able to show a glimpse of delivering profits in the future.
With the majority of global markets facing a recession, the Indian market is standing out as the only hope for future growth and leaner operations combined with growing volumes is giving confidence to the Renault Nissan alliance to bet on the next phase of investment.
The Powertrain Puzzle
As the Franco-Japanese alliance partners are readying themselves with the next phase of investment, a limited powertrain option could pose a competitive challenge to Renault-Nissan. The new plan has a petrol engine at the core of its portfolio, but the alliance partners will not have a diesel engine or a localised EV or hybrid in the portfolio yet. With CNG prices rising, it is doubtful if the gas engine has any relevance for the future.
With the limited budget, it has to choose wisely. Yet as it gets ready to prepare a new product portfolio, the company realises that it can't be seen as uncompetitive to multitude of options in the marketplace. Much like the Volkswagen Group, Renault-Nissan runs the risk of having a limited powertrain portfolio, even as the market leader Suzuki along with Toyota intend to offer CNG, hybrids and petrol variants in the Rs 10-25 lakh market. Tata Motors and Mahindra & Mahindra will have a petrol, diesel and even highly localised EV portfolio.
How the Alliance platforms will work out
For India