Chinese car makers expected to rapidly expand in Russia in 2023

Chinese car makers expected to rapidly expand in Russia in 2023
The exit of the international car makers has left a large hole in the Russian automotive sector, which remains one of the biggest markets in Europe. In 2023 they are expected to continue their rapid expansion to fill the void. / bne IntelliNews
By Ben Aris in Berlin January 6, 2023

In the first half of 2008 Russia sold 1.5mn cars, briefly overtaking Germany to become Europe’s largest car market – a position that it has never regained after the economy fell into recession following the crisis of that year and has been dogged by problems ever since. But it remains a very large and attractive market. Now the western producers have left following Russia’s invasion of Ukraine, China and a few other non-aligned countries are rapidly moving in to fill the hole left by the international household names.

The leading Chinese companies have been developing specific plans to increase their market penetration in Russia for 2023 and beyond, Silk Road Briefing said in a research note. The rapid exit of the big European Original Equipment Manufacturers (OEMs) have created bargains where competitors can snap up manufacturing facilities at fire sale prices that has led to a tsunami of M&A deals.

“European plants are being purchased at discounted prices, while significant investments are also being made. Chinese brands, which accounted for more than a third of the market in 2022, will be more active in the coming year,” Silk Road Briefing said in its note.

During 2023, Chinese auto manufacturers based in Russia plan to produce a series of premium class vehicles, at a time when many auto factories in Russia will also return to work after several months of downtime due to uncertain market conditions.

Automotive was probably the worst hit of all Russia’s industrial sectors by the sanctions slapped on the country after the start of the war and came to a screeching halt in the first half of the year. As 2022 came to an end production recovered somewhat as Russia’s factors adapted to the new realities, but production remains down by more than 60% y/y and is unlikely to grow quickly in 2023.

AvtoVaz: Russia’s preeminent car producer AvtoVAZ, the maker of the iconic Lada, has plans for the former Nissan plant in St. Petersburg. This factory will produce cars under the Lada brand, without competing with the existing line of the Volga Automobile Plant. Negotiations with new partners are planned to be completed in January-February 2023, with production expected to begin in the third quarter of 2023. China's FAW has already been named as the main candidate although the deal to replace former majority owners, the Renault Nissan joint venture, have yet to be finalised.

As AvtoVaz is the key company in the local economy of Tolyatti in the Samara Oblast where it is based, and a large employer, the Kremlin is heavily involved in the deal as it is in most of the big M&A deals going on following the start of sanctions.

“Whoever ends up partnering with AvtoVAZ, the plan for 2023 is to produce more than 400,000 vehicles over the year. For comparison, BMW's Spartanburg factory in South Carolina produced just over 400,000 vehicles in 2022 for the entire United States market,” Silk Road Briefings said.

Avtotor: Kaliningrad-based Avtotor, which previously assembled BMW, Hyundai, and Kia, has entered into an agreement with new partners – with strong rumours about Chinese manufacturers DongFeng and BAIC. Details are expected in the second quarter of this year. The company has already started test assembly of new cars.

Chery: The Chinese producer Chery is already well established in Russia and set to announce expansion plans this year. From January 1, sales of the Chery Tiggo 7 Pro Max, a modernised version of the popular crossover, will begin in Russia.

“This car will have a changed appearance and interior, more options, but the same power unit and only front-wheel drive. However, a more powerful engine and all-wheel drive transmission are also promised, but later in the year,” Silk Road Briefings said.

With the Arrizo 8 sedan, Chery plans to enter a new market segment and will start selling a hybrid with a gasoline engine and two electric motors in Russia. They promise that the electric car will be able to drive up to 75 km, while fuel consumption in the combined cycle will be 1 litre per 100km.

“Exeed, Chery's premium brand, is also planning a full line up update. This will include a completely new model in 2023 – a coupe-shaped crossover presented in China under the name Yaoguang. This is the first model on a modernised platform and in the brand's new style. The crossover will receive adaptive dampers, four-wheel drive with seven modes, and a brake system that works by wire without connection to the pedal. Under the hood is a two-litre turbo engine paired with a "robot",” Silk Road Briefings adds. “New items are also promised for the Omoda brand, which is also owned by Chery, but there are no details yet.”

Great Wall Motors: Another leading Chinese producer, also with a strong established Russian presence, is Great Wall Motors that will launch two frame SUVs under the 300 and 500 indices under the separate Tank brand, Silk Road Briefings reports.

“There are rumours that among the new products there will be a relatively inexpensive M6 crossover, which will be located between Jolion and F7. In addition, there is a possibility that the Ora retro-styled electric cars will come to Russia,” Silk Road Briefings said.

Geely: The third Chinese automotive major in Russia is Geely that has re-certified the long-awaited Monjaro crossover, scheduled to go on sale in Russia at the beginning of the year.

“For a mid-size car, a two-litre turbo engine (238 hp) is provided, paired with an eight-speed automatic. The Monjaro is planned to be imported from China, while the inexpensive Geely Emgrand 7 sedans will be assembled in Belarus for the Russian market. It is equipped with a 1.5 litre atmospheric engine with a capacity of 114 hp; paired with a five-speed “mechanics” or a variator,” Silk Road Briefings said.

Other manufacturers: Other brands that had previously remained quiet in the Russian market are also becoming active.

Changan: The state-owned Changan automobile manufacturer headquartered in Jiangbei, Chongqing. Founded in 1862, it is China’s oldest automobile maker and has recently increased its presence in the Russian market in the second half of 2022, presenting its spectacular Uni-K crossover, and at the end of last year began selling restyled versions of its CS55 Plus and CS35 Plus crossovers.

In December, Russia's largest car dealership OTTS received another representative of the new family, a Uni-V liftback with a length of 4680 mm. The car is certified with a 1.5-liter petrol turbo engine (181 hp), a seven-speed "robot," and an independent rear suspension, Silk Road Briefing reports.

Livan: Another new entry into the Russian market is China’s Livan, the heir to the once-popular Lifan, that went bankrupt and was renamed after the company was acquired by Geely.

“Currently, the brand's first model is undergoing certification for Russia. This is a small crossover X3 Pro with a 1.5-liter engine with a capacity of 113 hp, which is equipped with "mechanics" or a variator,” Silk Road Briefing reports.

Hongqi: The first Hongqi car was made in 1958, which was also the first car produced independently in China. Owned by China’s state-owned FAW Group Corp., Ltd. (First Automobile Works), the company produces a high end brand, which recently received Russian certificates for two of its models.

“The first model is a large (5137 mm) H9 premium sedan. It is planned to supply a base car with a two-litre engine (245 hp), a "robot," and rear-wheel drive to Russia. At the same time, an upmarket version with an extended wheelbase and a V6 engine is available in China. This is a mid-size Hongqi HS5 crossover with a two-litre engine, a six-speed automatic, and all-wheel drive. Hongqi cars will be distributed by FAW Eastern Europe, which is already supplying FAW cars,” Silk Road Briefing reports.

Other countries: In addition, Iranian automakers and the Vietnamese company VinFast have also announced plans to enter the Russian market. The ties between Russia and Iran in particular are rapidly deepening as Iran has also been subject to US sanctions and had turned to Russia as an ally. As bne IntelliNews reported, Iran and Russia are seeking to save each other’s car industries as Iran has a long experience of manufacturing cars while under international sanctions.

China, Iran, and Vietnam all have Free Trade Agreements (FTA) with the Eurasian Economic Union (EEU), which includes Russia, as well as Armenia, Belarus, Kazakhstan, and Kyrgyzstan as a free trade bloc making imports of cars and parts easy.

In turn, all these countries have bilateral trade agreements with members of the Commonwealth of Independent States (CIS), which additionally includes Azerbaijan, Moldova, Tajikistan, and Uzbekistan.

“In many ways, the Chinese are proven to be remarkably ahead of the game when compared to the withdrawal of EU auto manufacturers from the Russian market. This is not purely a reflection of the loss of the EEU markets in particular, but also a complete loss of future EEU market potential,” Silk Road Briefing reports.

“The EEU also has an FTA with Serbia, although this has recently proven problematic due to EU sanctions and prohibitions on rail transit from Russia. However, other countries known to be discussing FTA with the EEU include the resumption of Uzbekistan as a full EEU member, Bosnia & Herzegovina and Moldova in Europe (although Moldova has a recently-elected pro EU Prime Minister), Egypt, Israel, and the UAE in the Middle East, Bangladesh, Cambodia, Indonesia, Mongolia, South Korea in Asia, and Cuba and Ecuador in Latin America. The implications for Chinese auto manufacturers using the EAEU in particular as a springboard into other markets is highly significant,” Silk Road Briefing adds.