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Europe/Korea: Renault to Subcontract Electric-Battery Development

RENAULT—Renault SA RNO.FR +1.91% 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. 051910.SE -0.98% —a unit of South Korea’s LG Group 003550.SE -0.71% —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. 7201.TO +0.93% and NEC Corp. 6701.TO +0.81%

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.


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