Renault to Subcontract Electric-Battery Development
Originally Posted by The Wall Street Journal
RENAULT—Renault SA won't be using proprietary battery technology for its electric cars in the foreseeable future, and will instead rely more on a South Korean supplier, as the French auto maker seeks to save cash and reduce expenditure, people familiar with the matter said Wednesday.
Renault has signed a draft agreement with LG Chem Ltd. —a unit of South Korea's LG Group —to buy the company's battery packs, these people said.
A Renault spokeswoman confirmed the tentative deal with LG Chem.
Renault's decision highlights how the company is battling to cut costs amid sagging vehicle sales in its core European market, as well as the complexity of plotting a battery strategy amid rapid technology evolutions.
LG Chem already supplies batteries to Renault for its Twizy, an urban, two-seater electric quadricycle, and the ZOE, a mass-market subcompact car that will go on sale later this year.
Renault originally envisioned the battery-supply deal with LG Chem to last only a few years—until it was ready to manufacture its own. But the French auto maker has now decided to leave the costly battery-technology side of its ambitious electric-vehicle strategy almost entirely up to the South Korean company, which has decades of experience in battery development and production and an army of engineers working on the technology, the people familiar with the matter said.
Under this week's arrangement, LG Chem would manufacture cells and packs for the Twizy and ZOE at one of Renault's facilities after 2014.
Renault produces two other electric vehicles—the Kangoo, a small van; and the Fluence, a compact sedan whose sales are still quite marginal, as the bulk of the sales so far has been to fleet operators. The batteries for these vehicles are made by Renault's Japanese alliance partner Nissan Motor Co. and NEC Corp.
Renault and Nissan say they have invested some €4 billion, or roughly $5 billion, to get the first-mover advantage in what they expect will be a huge money spinner in the coming decades as emissions norms become increasingly more stringent for car makers and fuel prices tend to rise.
But Renault is also desperate to lower the cost of manufacturing its electric vehicles. The high cost of batteries—several thousand euros—pushes up sticker prices and is one of the biggest hurdles in persuading consumers to buy the vehicles.
Renault decided it was less risky to subcontract battery development and production for a technology that's evolving so quickly that the power storage and efficiency of today's batteries will be outdated tomorrow, these people said.
Renault's planned tie-up with LG Chem is the latest twist in a saga that began in 2009, when the automobile industry was reeling from the collapse in sales that followed the financial crisis.
At the time, seeking ways to save jobs in the industry in France, the government arranged a €600 million project involving investments by Renault, the French state and AESC, a battery-making joint-venture between Nissan and NEC. Renault is 15% state-owned.
The idea was for the venture to develop and manufacture batteries next to the Renault car assembly plant in Flins, west of Paris, where production of the ZOE is just getting under way, with first deliveries slated to start in the last quarter of this year.
That project collapsed last year, however, amid concerns over its economic viability. Renault then looked for another partner to give it a leg-up to allow it to master battery technology and extract more added value from its electric-vehicle program, and found one in LG Chem.
Battery production at Flins, which was hailed in 2009 as Renault's "center of gravity" for its electrical-vehicle strategy, is now expected to start in 2014, one of the people familiar with the matter said.
The ambitious electric-vehicle strategies of both Renault and Nissan are the brainchildren of Carlos Ghosn, who heads both companies. Mr. Ghosn still expects plug-in electric vehicles will account for 10% of global vehicle sales by 2020, while most industry experts predict 5% at best.
With renewed and increasing signs of fragility in the French automotive sector, the French government said Tuesday that it's preparing measures to bolster the industry. Industry executives say Renault may benefit from new government incentives for the electric-vehicles segment, which currently represent only a tiny fraction of overall automobile sales.
Renault officials point out that the company is still keeping an eye on developments in battery technology through its partnership with France's Atomic Energy Commission.