Two years ago, the outbreak of the conflict between Russia and Ukraine, so that the European, American and South Korean car brands had to regret to withdraw, in the face of this historic window period, Chinese car companies quickly responded, carrying a number of boutique models, to break into Russia with the potential to fill the gap in the market, the Russian car market from the original blossom gradually transformed into the Chinese and Russian brands two parts of the world.

 

However, in the context of Russia's strong support for local brands and the introduction of restrictions on parallel imports of Chinese cars, the window period for Chinese car companies seems to be gradually shortening, and challenges are coming.

 

 

Chinese brands account for more than half of the market

 

It should be pointed out that before the outbreak of the Russia-Ukraine conflict in February 2022, the presence and market share of Chinese auto brands in Russia was not high. At that time, the popularity of the French Renault group controlled Avtovaz under the local brand Lada, as well as Hyundai, Kia, Toyota, Volkswagen and other European, Japanese and South Korean car companies. In 2021, for example, the total sales of Chinese brands in Russia reached 115,700 vehicles, accounting for about 7 percent of the market.

 

After the outbreak of the conflict between Russia and Ukraine, foreign brands including Renault Group, Nissan, Toyota, Mercedes-Benz, Ford, Mazda, Isuzu, Volkswagen Group, Hyundai and Kia successively withdrew. Most of the factories left behind by these automakers have been taken over by Russian companies or related institutions and used to produce Russian brand models. Avtovaz and its Lada brand are also back in Russian hands.

 

At the same time, Chinese car brands are springing up on Russia's streets. By 2023, the sales volume of Chinese auto brands in Russia has exceeded 500,000, and the market share is close to 50%, which has made a big leap. The market void left by the withdrawal of other foreign brands is basically filled by local Russian brands and Chinese brands. For both sides, it can be called a "lying win".

 

In the past two years, the Russian car market has recovered rapidly, and the Moscow-based Association of European Business (AEB) Automobile Manufacturers Committee (AMC) released data showing that in the whole year of 2023, Russia's new car sales totaled 937,000 units, an increase of 36%. This is based on data provided by car companies and official importers. The AEB also introduced new car retail sales data from PPC JSC Consulting, which showed that for the whole of 2023, new car sales in Russia amounted to 1.128 million units, an increase of 57.8 percent year-on-year.

 

After entering 2024, the Russian car market continues to grow rapidly, and the advantages of Chinese brands are quite obvious, and the performance is also very "eye-catching". Russian auto industry analyst Autostat said that in the first half of this year, Chinese car brands sold 417,500 vehicles in Russia, accounting for 58 percent of the total.

 

In addition, according to the statistics of PPC JSC, in July this year, among the top ten brands in the Russian car market, Lada, the only one from Russia, continued to occupy the champion throne, while the other nine seats, eight are Chinese brands, and one is Belgee, a joint venture brand between Belarus and Geely. Specifically, the eight Chinese brands on the list are: Haval, Chery, Geely, Changan, Omanda, Jetto, Star Road, Jaecoo, and most of them achieved a high increase, especially Haval and Chery basically doubled.

 

 

Restrictions on parallel imports are highlighted

 

At present, in addition to the Great Wall Motor has a Tula factory in Russia, the vast majority of Chinese brand cars are still imported into the Russian market. Because the EAEU (Eurasian Economic Union) countries represented by Kyrgyzstan have the advantage of low customs clearance taxes to export to Russia, a large number of car manufacturers choose to first transport vehicles to Central Asian countries for transit, and then ship to Russia. Many Russians and dealers also choose to buy cars in Kyrgyzstan, which makes its capital Bishkek an important transit hub for cars, and a large number of cars enter Russia through Kyrgyzstan.

 

In the face of surging Chinese car sales, the Russian side is a little restless. On April 1 this year, Decree No. 152 of the Government of the Russian Federation began to be implemented, and the parallel export or used car export vehicles that were originally transferred from China to Central Asian countries and then shipped to Russia need to make up all kinds of taxes, including tariffs, value-added tax and consumption tax, which blocked the "low tax channel" for car merchants to avoid taxes through Central Asian countries. China's once-hot parallel export market for cars has been hit by a chill.

 

What's more, since October 1, 2023, Russia has modified the parallel import regulations, Chery, Changan, Star Road, Geely, Tank, Kaiyi, Dongfeng, Lantu and other more than a dozen Chinese auto brands are no longer applicable to the parallel import model. It is reported that the parallel import model has been implemented since the spring of 2022, and importers do not need to obtain manufacturer's authorization to import vehicles. After the adjustment of the policy, the simplified model is no longer applicable to the import of more than 10 brands of automobiles.

 

In addition, the export of Chinese electric vehicles to Russia is also more complicated, according to the new regulations issued by Russia in February this year, legal entities must obtain OTTS vehicle safety certification, rather than the simplified version of ZOETS certification. However, achieving OTTS certification requires full-cycle testing, including multiple crash tests, which is lengthy and expensive, and must be authorized by the vehicle manufacturer. Prior to this, most Chinese electric vehicle brands such as polar Krypton, Ideal, and NIO were mainly imported by traders or in the name of individuals. The new rules apparently blocked an important import route for electric vehicles in China.

 

From the effect of Russia's restrictions on parallel imports to China, AEB AMC Chairman Alexei Kalitsev recently pointed out in a statement: "It is clear that the share of parallel imports is decreasing and becoming insignificant. In the automotive market, official importers and manufacturers are already consolidating their dominance. However, due to a number of factors and government initiatives aimed at stimulating local production, we will soon see a reduction in car imports as well."

 

He noted that the Russian government is working to reduce parallel imports and increase localized production. However, given the instability, most Chinese car companies are still cautious and hesitant about building factories in Russia, and the Russian government is vigorously supporting local brands, such as increasing the capacity of the Lada brand and reviving the "Muscovite" brand. In addition, the influx of dozens of Chinese brands has made the competition more fierce, and the difficulty factor of "digging gold" in the Russian car market seems to be gradually climbing, and car companies still need to plan early.

 

China Automotive News, August 27, 2024