Yommie
Elite Member
- Thread starter
- #1,561
Russia’s car sector makes almost full recovery from sanctions shock
After coming to a total stand still in the months after the invasion of Ukraine two years ago, Russia's automotive sector has almost made a complete ...
www.intellinews.com
Russia’s car sector makes almost full recovery from sanctions shock
After coming to a total stand still in the months after the invasion of Ukraine two years ago, Russia's automotive sector has almost made a complete recovery and is on course to sell 1.3mn cars this year. / bne IntelliNews
FacebookTwitterLinkedInTelegramFlipboardFeedly
By bne IntelliNews May 4, 2024
After coming to a total stand still in the months after the invasion of Ukraine two years ago, Russia's automotive sector has almost made a complete recovery and is on course to sell 1.3mn cars this year.
Passenger car and light commercial vehicles (LCVs) sales in Russia grew by 102% in March 2024 y/y and by 86% year on year in 1Q24, to 150,640 sales according to the latest report by the Association of European Business’s Automobile Manufacturers Committee (AEB) Automobile Manufacturers' Committee that tracks car sales. (chart)
The all-time high was set in December 2019 with 179,000 sales. This March’s results were the highest result since June 2021 when 157,800 cars were sold. (chart)
Russia’s car production came to a screeching halt after all the international European Original Equipment Manufacturers (OEMs) halted imports of parts that make up some two thirds of their inputs at Russia-based factories, bringing production to a standstill. By the end of 2022 there were only 11 foreign carmakers left in Russia from over 60 pre-war, almost all of them Chinese. At its low point, Russia was producing just over 3,000 vehicles a month in the summer of 2022.
Russia remains a very attractive market and briefly overtook Germany as the largest car market in Europe in the first six months of 2008, churning out over a million cars in that period and was on track to break through the two million mark by the end of that year. However, the Great Financial Crisis of that year knocked back income and sales tanked, never to fully recover.
The coronavirus pandemic also hurt sales during the lockdown months that started in April 2020. But as the chart shows, the self-sanctions imposed by OEMs in the second half of 2022 have had by far the most negative effect on the Russian automotive business, depressing the market for a year until the autumn of 2023 when sales began to recover.
Over the last two years foreign manufacturers – largely Chinese, but with a growing share of other countries like Iran – have gleefully stepped into the hole created in the market by the departure of the OEMs.
As followed by bne IntelliNews, according to other estimates passenger car sales in Russia doubled year on year to 356,000 vehicles in 1Q24.
“The first quarter of 2024 showed strong results. The significant increase in supply corresponded to extremely high demand. Demand was stimulated by adaptation measures of state support,” AEB’s head Alexey Kalitsev commented.
As followed by bne IntelliNews, Kalitsev noted that changes in regulation and taxation of the car sector coming into force in April 2024 led to front-loaded demand and sales growth more than doubling compared to last year.
Car sales in Russia were expected to jump in the beginning of 2024 due a number of regulatory measures that are likely to raise sales prices later in the year. As of April 1, the "grey" schemes of import through the EEU countries will be outlawed, which previously allowed to reduce the cost of imported cars.
“The likelihood of a significant increase in the price of a car due to possible additional charges was an incentive for consumers who were planning to purchase a car to resolve this issue before
the new rules came into force,” Kalitsev noted.
“Based on the emerging trends on the market and taking into account the fact that there will be no significant negative changes, the AEB confirms the previously announced forecast and believes that in 2024 the market will reach and possibly exceed 1.3mn new cars [sold],” AEB press release said.
To remind, Chinese cars have dominated the Russian market since the beginning of the full-scale military invasion of Ukraine. They are also expected to take over vacant assembly capacities left behind after the exodus of Western, Japanese and Korean carmakers.
Chinese automotive companies are growing quickly and China’s BYN has already become the largest market and exporter of electric vehicles (EV) last year. Brands like Chery, Geely, and Great Wall were already established in the Russian market at the time of the start of the war in Ukraine, and they have all expanded production rapidly.
At the same time, Russia turned to Iran to help rescue its car industry, which has also developed a large automotive sector, and did so entirely under a sanctions regime that was first imposed in 1979. Iran has a large automotive sector that caters to its domestic demand, based on French technology. Iran has also dramatically increased exports to Russia since the start of 2023.
The iconic Russian-made Lada returned to its slot as the most popular model on the market and quickly solved its lack of western input problems, like the dearth of airbags and onboard computers, by the summer of 2022.
Sales of Ladas were up last year, and Deputy Prime Minister and Industry and Trade Minister Denis Manturov said that Russia’s car market will fully recover to pre-pandemic levels by 2030. But at the current pace it looks like sales could reach that benchmark much sooner thanks to the current consumption boom that is being driven by rapidly rising real incomes, according to the central bank’s recent macroeconomic survey.
Russia’s economy was expected to stagnate thanks to sanctions, but instead growth has been surprisingly strong thanks to a military Keynesianism boost and the tight labour market that is driving up wages faster than inflation.
