Chinese Auto Manufacturers Eye Russia As Europeans Leave
Russia is the world’s eighth largest auto market with considerable growth potential in leaving the EU behind.
The numerous Russian JV’s with European auto manufacturers are set to be re-positioned with Chinese partners as Russian manufacturing and component parts markets have suddenly become accessible.
Sixteen European car manufacturers (including 4 of the top 10 by market share) sold close to half a million units of Russia’s total sales of 1.67 million in Russia last year, putting in the top eight in terms of global sales volumes. While for some the Russian market is small, for others it is significant – Renault obtained 18% of their total group volumes from Russia last year.
Auto manufacturers exiting or suspending operations in Russia have included Daimler, Ferrari, Ford, Hyundai, Mercedes-Benz, Nissan, Stellantis (Fiat-Chrysler-Peugeot), Renault, Toyota, Volkswagen, and Volvo. Most are negotiating for their Russian partners to purchase their assets, with all taking haircuts. Some have had to abandon regional expansion plans – Volkswagen Russia had been negotiating to produce EV in Uzbekistan as recently as February. Those opportunities now revert to Russian, and probably Chinese investors.
All these withdrawals are leading to Chinese manufacturers stepping in to broach the supply chain gaps and partner with the Russians instead.
The Russian auto-market is terms of the European Union has declined anyway due to sanctions being imposed on the sector in 2014 following the annexation of Ukraine. Prior to this, in 2012 it had been expected that the Russian auto consumer market would overtake Germany’s – a large prize. Instead, that market is being taken by China, although other Asian players such as India’s Tata will also be assessing the potential.
The Russian auto-market is not just about Russia either. Russia has Trade Agreements with most of Central Asia and is extending that reach via the Eurasian Economic Union into ASEAN and North Africa – a far larger prize and one of which the Chinese will be well aware.
Russia has over 70 domestic auto manufacturers, although the Big Three, Lada, Gaz, and UAZ dominate. Together, they sold about 440,000 units in 2021. With the exit of foreign players, the smaller manufacturers should benefit and gain domestic market share in the coming years. Shrewd Chinese investments could see some of these develop as regionally important brands, at a time when Chinese brand acceptance has also been growing in Russia. According to the Association of European Businesses, the total share of the three main Chinese players in the Russian passenger vehicle market; Geely, Chery, and Haval rose from 2.8% to 6.3% last year.
At present, due to 2014’s sanctions and the now current situation in Ukraine, Russia’s auto industry has declined and is far below its capacity and market potential. Aligning the industry with eastern markets, where vehicle ownership per 1,000 is still way below Western averages, yet where Asian economies are growing at higher rates than Europe should mean that the Russian auto industry will develop from its current moribund state to become a significant market player not just in Russia – but throughout Asia. The only debatable factor is where Russian branding will take precedence over Chinese branding. But this is purely a marketing, not production capacity detail.
May 19 2022 breaking additional news
Renault’s former Moscow plant to build Chinese cars under the revived Moskvich brand. See here
Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at email@example.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.