Sanctions “wretched” the Russians: Chinese car sales in Russia have reached their peak, and domestic production is recovering – News from sources

Sales of Chinese cars in Russia appear to have peaked as domestic production recovers from an exodus of Western automakers, data seen by Reuters showed, but recent market growth may stall as high costs of import and interest rates will start to take effect.

The figures are early indications that the Russian car market and China’s role in it have stabilized after almost two years of unrest caused by the sanctions imposed on the sudden exit of Western companies from the Russian market, following Moscow’s invasion of Ukraine, writes news.ro.

But the sector, which has seen a nearly 60% drop in sales in 2022 while output has fallen to a post-Soviet low, is still a long way from its pre-invasion levels. Sales and production in 2023 will be among the lowest in the last 10 years.

Before the February 2022 invasion, Chinese cars represented less than 10% of the Russian market. In August this year, the sales share of Chinese brands reached a peak of nearly 56%, data from the Autostat analysis agency and its partner consulting company PPK showed.

That percentage has now leveled off, with Chinese brands selling around 60,000 units each month since August, up from a 53% share in September.

Sales include imported vehicles and those manufactured within Russia.

Chinese automakers such as Haval, Chery and Geely are capitalizing on the departure of Western players who dominated the market before the invasion of Ukraine, showing Moscow’s growing dependence on Beijing and growing economic ties with China as the West shuns Russia because of the war.

Russia jumped from 11th place to become China’s biggest car export market, reaching $9.4 billion in January-October, Chinese customs data showed.

In the same period last year, car exports to Russia amounted to 1.1 billion dollars.

Overall, monthly car sales in Russia are now more than double what they were a year ago, Autostat data showed, while separate data from federal statistics service Rosstat showed car production was almost three times higher in September, year-on-year, highlighting the sector’s partial recovery.

Chinese carmakers have been key in the process, but with demand now largely satisfied, there is a cap on their further expansion in the sector, Autostat chief executive Sergei Udalov told Reuters.

“The market has reached a state of equilibrium – the main Chinese brands have come to Russia and the (returned) demand is satisfied”, said Udalov.

Russia’s main carmaker, Avtovaz, which makes the most popular Lada cars, is responding to the demand for cheap cars, while Chinese brands are filling the gap left by Western manufacturers for more expensive vehicles, Udalov added.

That trend could change if either Avtovaz or Chinese automakers try to dip their toes into different price categories, Udalov said, but for now, despite low sales and production, the outlook for market growth are weak.

Sanctions against Russia contributed to a drop in car production and sales, especially in 2022, but also after Moscow annexed the Crimean peninsula from Ukraine in 2014.

Sales have not exceeded 2 million vehicles since 2014 and production has also been lower.

Just over 626,000 new cars were sold in Russia in 2022 and nearly 830,000 were sold between January and October this year.

A modest recovery is underway from the 2022 lows, but the loss of Western technology and expertise is weighing on the sector, analysts say, even as Chinese automakers move to some of the factories vacated by their Western counterparts.

In the first three quarters of 2023, Russia produced only a few thousand more cars than in the same period last year, Rosstat data showed, but the numbers are now rising.

“The increase in demand, which started at the end of spring and lasted until August, started to run out in September,” said economist Natalia Zubarevici, a professor at Moscow State University.

Wages have risen, partly because of above-target inflation, but four interest rate rises since July, to 15%, mean that although people have more money, credit is much more expensive.

“(Key) interest should have a depressing effect (on car loans), and this should be seen in October and November,” said Zubarevici.

Meanwhile, the fall of the ruble to 100 units against the dollar this year has made imports more expensive, depressing purchases of Chinese cars.

Since then, the ruble has recovered to approximately 90 units per dollar.

The central bank said this month that the ban on imports of some Japanese cars, combined with the weakening of the ruble, is driving up the prices of foreign cars.

Avtovaz last week cut its 2023 production forecast of 400,000 Lada cars by up to 10% in response to US sanctions imposed on the Russian industry in September, which specifically targeted Avtovaz.

“The market is in an extremely unstable state”, said Zubarevici.