Daily Management Review

Fragile Local Recovery Of Russia Slows Down Burgeoning Chinese Car Sales In Russia


Fragile Local Recovery Of Russia Slows Down Burgeoning Chinese Car Sales In Russia
Data supplied with Reuters indicated that Chinese car sales in Russia appear to have peaked as domestic production recovers following the departure of Western manufacturers. However, recent market expansion may slow as high import costs and borrowing rates start to pinch.
These numbers are early signs that Russia's automobile market, and China's standing in it, has stabilised following nearly two years of turmoil brought on by sanctions imposed on Moscow and the abrupt withdrawal of Western corporations following the invasion of Ukraine.
But the industry is still far from its pre-invasion levels, as seen by the nearly 60% decline in sales and the post-Soviet low in production that it experienced in 2022.
2023 is expected to see some of the lowest output and sales levels in the previous ten years.
Less than ten percent of Russian automobile sales were Chinese vehicles prior to the invasion in February 2022. Data from the analytical agency Autostat and its partner consulting business PPK showed that the share of sales for Chinese brands reached a peak in August of this year, coming in close to 56%.
Since August, the ratio has stabilised out, with Chinese brands selling about 60,000 units each month, or 53% of the market in September. Sales comprise both domestically produced and imported automobiles.
Chinese automakers Haval, Chery, and Geely are profiting from the withdrawal of Western companies that formerly controlled the market prior to the invasion of Ukraine, demonstrating Moscow's growing reliance on Beijing and expanding economic connections with China while the West avoids Russia due to the conflict.
According to Chinese customs data, Russia rose from 11th place to become China's top auto export market, with a value of $9.4 billion between January and October. $1.1 billion worth of automobiles were exported to Russia during the same time last year.
According to Autostat data, monthly automobile sales in Russia have more than doubled from a year ago. Separate data from Rosstat, the federal statistics office, revealed that car manufacturing increased by over three times in September compared to the same month last year, indicating a partial recovery in the industry.
Chinese automakers played a significant role in that process, but Autostat Executive Director Sergei Udalov told Reuters that there is a limit to how far they can go in the industry now that demand is mainly met.
"The market has reached a state of equilibrium - the main Chinese brands have come to Russia and (pent-up) demand is satisfied," Udalov said.
According to Udalov, Chinese firms are stepping in to fill the void left by Western manufacturers for more expensive automobiles, while Russia's top automaker Avtovaz—maker of the most well-known Lada cars—is meeting consumer demand for affordable cars.
Udalov stated that although Avtovaz or Chinese automakers decide to experiment with alternative price points, this tendency might reverse. However, given the current low output and sales, the market's chances of expanding are limited.
Car manufacturing and sales declined as a result of sanctions against Russia, particularly in 2022 and following Moscow's 2014 annexation of the Crimean peninsula from Ukraine.
Since 2014, sales have not exceeded 2 million cars, and output has decreased as well.
In 2022, little over 626,000 new automobiles were sold in Russia; from January to October of this year, about 830,000 cars were sold.
Even if Chinese automakers are starting to settle into some of the plants that their Western rivals left empty, analysts say that the industry is suffering from the loss of Western technology and experience, despite a minor recovery from 2022 lows.
According to Rosstat data, Russia produced only a few thousand more automobiles in the first three quarters of 2023 than it did in the same time the previous year, but the numbers are currently heading upward.
"The growth of pent-up demand that started in late spring and lasted through August started to run out of steam in September," said economist Natalia Zubarevich, a professor at Moscow State University.
Although wages have been rising, in part because of inflation that is over goal, lending has become much more expensive despite four interest rate hikes to 15% since July.
"The (key) rate should have a depressing effect (on car loans), and this should reveal itself in October and November," Zubarevich said.
In the meantime, import prices have increased due to the rouble's decline to 100 against the dollar this year, which has decreased demand for Chinese auto sales. Since then, it has increased to about 90.
This month, the central bank claimed that rising international automobile costs were being caused by the restriction on select Japanese auto imports and the depreciation of the yuan.
Avtovaz last week reduced its projected 400,000 Lada car production for 2023 by as much as 10% in response to U.S. sanctions on Russian industry that were aimed especially at Avtovaz in September.
"The market is in a highly unstable, shaky state," said Zubarevich.