"In Russia, dealers now have what to sell, and many dealers don't have cars to sell." Wang Peng, a senior executive of the Russian market of a Chinese car company, said in an interview with the first financial reporter in December 2021 that there is no relevant agency in Russia to calculate the shortage of chips, but the supply of automobiles is indeed tight. For example, the Sales volume of the Russian car brand Lada is about 28,000 to 30,000 units per month, but in October 2021, the sales volume of the Lada is only more than 6,000 units. Lada is taking the national brand route, dealers usually do not have random markup behavior, but in the current special situation of tight supply, some dealers have also begun to increase the price of sales.
Affected by multiple factors such as politics and economy, sales in the Russian market have not been stable in recent years, with sales hovering between 1.3 million and 1.6 million in recent years. In the Russian automotive market, fluctuations in sales volume are closely related to the economy and exchange rates. To some extent, the growth of the car market depends on the exchange rate and economic stability.
Before the 21st century, the Russian auto market sold almost exclusively domestic brands. In 2000, the sales of Russian brands began to decline slowly, while the sales of imported brands and foreign brands assembled in their territory continued to rise, even surpassing domestic brands. Affected by the financial crisis, Russian car sales began to plummet in 2009, and then resumed growth relatively quickly. However, since then, the sales of local Russian car brands have continued to decline, and the sales of foreign brands assembled in China have begun to grow rapidly and surpass imported brands.
The shrinkage of Local Brands in Russia has also given foreign brands such as Chinese brands opportunities for development. According to the latest data, in the first 11 months of 2021, Russian passenger car sales reached 1.35 million units, an increase of 5.3% year-on-year. Among them, Russian brands sold 318,000 units and foreign brands sold 1.032 million units.
Local brands continue to shrink
In 2020, the Russian auto market was affected by the epidemic, and from April to June 2020, Russian auto dealers closed their stores, and the market fell by nearly 20% at one point. In the first half of 2021, the Russian auto market exploded, but due to the shortage of chips, the auto market began to decline from the third quarter. According to the latest data, in November 2021, Russian passenger car sales reached 98,000 units, down 23.8% year-on-year. In the first 11 months of 2021, passenger car sales in Russia reached 1.35 million units, an increase of 5.3% year-on-year. Among them, Russian brands sold 318,000 units and foreign brands sold 1.032 million units.
It is worth noting that from the above data, it can be seen that the Russian auto market is dominated by foreign brands. The reporter learned that at present, only Lada is a Russian local brand in the passenger car market, and the previous Muscovites, Volga (gaz izh), and Guiss brand cars have all withdrawn from the market. In terms of market share, Lada ranks first among passenger car brands. According to a report released by Russia AutoMotive Market Watch, two of the three best-selling models in the Russian market in the first 11 months of 2021 were Rada models, and the other was South Korea's Kia's rio.
According to a data compiled by Russia Auto Market Watch, in the first 11 months of 2021, the Lada brand ranked first with sales of 287,000 units, followed by Kia (180,000 units) and Hyundai (142,000 units). The top 10 brands also include Renault, Toyota, Skoda, Volkswagen, Nissan, BMW and Chery. In other words, sales in Rada, Hyundai and Kia alone account for half of the passenger car market.
Wang Peng believes that the Lada brand can occupy a higher market share and the national subsidy policy is related, Russia has a personal car purchase subsidy, loan subsidies, etc. every year, such subsidies are tendentious, first of all, tend to Lada. The scrap disposal tax subsidy is also a favorable policy for local brands. For foreign brands, the scrap disposal tax is the second largest threshold in addition to tariffs, and Chinese auto brands imported from China to Russia do not enjoy the scrap disposal tax subsidy at all, but Lada is a localized production. "Without these subsidies, Rada would have died." Wang Peng said.
"In recent years, Local Russian brands are losing market share, which is mainly a matter of management decisions, they are reluctant to invest in products and marketing. As far as the Lada brand is concerned, Renault-Nissan's global strategy focuses on standardization of platforms, engines, transmissions, etc., but they are not interested in local research and development and investment in Russia. Sergey Burgazliev, a senior analyst in the Russian automotive industry, told the first financial reporter.
At present, the combined market share of the two brands of Hyundai and Kia has surpassed that of Lada. Wang Peng analyzed that Hyundai Group's ability to gain a foothold in the Russian market is related to its own strategy. Hyundai Motor Group regards the Russian market as one of the world's important markets, and has made great efforts to invest and support, and the speed of product launch is faster and the products are more abundant.
In addition, compared with Korean car companies, European and American car companies have performed relatively poorly in the Russian market. The reporter learned in the interview that the poor performance of US car companies is largely affected by political factors, Chevrolet has withdrawn from the Russian market, and Ford has only retained the commercial vehicle business. However, European brands have not been greatly affected, and Mercedes-Benz, BMW, Volkswagen, etc. have established factories in Russia. For some German and Japanese brands, the proportion is relatively low, and the industry believes that this is related to the strategy of car companies. In the case of Russia's unstable exchange rate and difficult pricing of auto products, some car companies have not regarded Russia as a strategic center of the global market.
Sergey Burgazliev believes that some European and American car companies are very indifferent to the Russian market, while senior managers are unprofessional and make a wrong judgment on market demand. "The outlook for the Stellantis Group is very bad, and now there is only one smart lady working in the Russian office, and almost all the business is pressed on her. If for some reason left the company, the Stellantis Group might collapse. ”
"The weak industrial base is the main reason why Russian local brands have not developed, Russia has not given full support to its own automobile industry, missed the golden period of the development of the automobile industry, and the auto parts supporting system has not developed." Most of the Russian auto parts interiors and electronic components are made in China. Although local brands have certain technologies, taking Lada as an example, its engines and transmissions are all domestically produced in Russia, but many other parts are dependent on other countries. Due to the problem of supporting supply of the Russian automobile industry chain, the development of the automobile industry is also constantly giving in. Wang Peng told reporters.
At present, Russia is launching the local luxury brand Aurus, and its new model, Komendant, will be officially put into production at the end of 2022. In 2018, the brand launched Aurus Kortezh became the executive seat of the Russian president, personally endorsed by President Putin. Putin believes that the mass production of Aurus cars will strengthen the presence of Russian cars in the international market and will have the opportunity to increase the export of high-tech products. "A bit like the domestic red flag, which is still in the stage of brand promotion, Aurus will accept orders for large-scale private car purchases from 2022, and in fact the industry regards it as an official car." An auto industry source in Russia told reporters.
The exchange rate affects the growth of the automobile market
Previously, due to political factors such as Ukraine, Western countries led by the United States imposed continuous economic sanctions on Russia, which caused Russian car sales to fall sharply. According to a data obtained by the first financial reporter, since 2014, the Russian auto market has begun to experience a volatile decline. Passenger car sales reached 2.276 million units in 2014, 1.284 million units fell off a cliff in 2015, picked up in 2017 and 2018 (1.607 million units), followed by a slight decline in 2019, and a further decline to 1.434 million units in 2020 due to the impact of the epidemic.
Sergey Burgazliev, a senior analyst in the Russian automotive industry, told first financial reporters that the average annual sales of passenger cars in Russia is between 1.3 million and 1.6 million. Among them, the government procurement vehicles are about 200,000 to 250,000 vehicles. This means that if the government stops purchasing support, it will lose 15% to 20% of sales every year.
"As long as there is no major geopolitical dispute and the ruble is stable, the Russian car market will show a steady growth rate, and the annual growth rate is expected to reach about 7%, but there will be no spurt growth." Wang Peng believes that in the past decade, the Russian auto market has not undergone significant changes, on the one hand, the government has not given greater support to the auto industry for many years, and the Russian auto industry as a whole has no core technology, and there is no mature automotive supply chain. On the other hand, the government has not made up its mind to build another domestic brand.
Unlike the Chinese market, Russia has a small population and imperfect road infrastructure, which is one of the reasons why the Russian auto market has not shown significant growth for many years. According to public information, there are 140 million people in Russia, with about 53.98 million cars and about 386 cars per 1,000 people. China still has less than 200 cars per 1,000 people, and Russia has no compulsory car scrapping policy.
However, compared with mature markets such as Europe and the United States, the Russian market is considered to have certain development potential. A data provided by Sergey Burgazliev to reporters shows that from 2022, the Russian auto market will show a steady growth trend, and the Russian passenger car market is expected to sell about 1.7 million units in 2026.
"For Russians, the price of cars is higher, so buying a car is not very attractive. The Russian auto market hasn't changed much over the years, and new things like car-sharing only exist in a few big cities like Moscow and St. Petersburg. Sergey Burgazliev told reporters.
The reporter learned that the price of mainstream models in the Russian passenger car market is about 100,000 yuan. In the Russian market, the proportion of loans to buy cars is very high, which is mainly due to the low overall purchasing power of Russia. The gap between rich and poor in Russia is large, and the income structure of residents is two large and the middle is small. Therefore, in the Russian market, luxury brand cars are not worried about selling. With the fluctuation of the exchange rate, the price of automotive products of brands such as Audi, Mercedes-Benz, BMW and Porsche is increasing every year, but sales remain unaffected. That is to say, in addition to the chip supply problem in 2021, the sales volume of luxury brands is not affected by market fluctuations. The people who buy luxury cars are not very sensitive to price, and due to the large fluctuations in the exchange rate, Russians have an investment psychology when buying cars. "If you don't buy this year, in case the price increases next year, it is better to buy it with a loan this year, so that it is more appropriate to sell it in two years." Wang Peng said.
Chinese brands are developing rapidly
As early as around 2004, Chinese auto brands such as Lifan, Chery, Great Wall, and Geely began to enter the Russian market through vehicle exports. However, the share of Chinese car brands in the Russian market is not high, due to comprehensive factors such as politics and economy, some car companies even have plans to withdraw from the Russian market. Only in recent years, some Chinese car companies have begun to develop the Russian market.
The reporter learned that the sales of car companies in overseas markets include cbu and CDK two forms, and in the past many years, foreign brands have taken the form of cbu to export to the Russian market, this form of vehicle export production costs are low, only need to do adaptive development and certification of the target market can be sold, but at the same time face high tariffs, which causes some brands to be on the verge of loss.
"It's like, I want to eat this chicken leg, but I can't eat it." Wang Peng told reporters that one of the biggest challenges for Chinese car companies is the instability of the exchange rate. The exchange rate has changed, and the auto products will follow the price adjustment, but the number of price adjustments cannot be too much, consumers will wait and see, and each price adjustment will also have a certain impact on sales.
Due to the exchange rate changes in recent years and the government's collection of rebates on imported cars, the burden of automobile imports has increased, including car companies such as Japan, South Korea and Europe, which have gradually changed from importing mainly to building factories in Russia. In 2019, Great Wall Motor spent a lot of money to build a Tula plant in Russia, the Tula plant is the first Chinese auto brand overseas covering stamping, welding, painting, assembly of the four major production processes of the vehicle manufacturing plant, the planned annual output of 150,000 vehicles, localization rate of 65%.
"If the biggest change in the Russian market in recent years has been, it is that consumers' perceptions of Chinese brands (Chery, Geely, Haval) have changed fundamentally, and the attitude of customers is much more positive than it was five years ago, which is why Chinese brands have been able to succeed." Sergey Burgazliev told reporters.
According to the Russian Association of European Enterprises, In the first 11 months of this year, Chinese automakers sold 103,000 new cars in Russia, an increase of 1.1 times year-on-year, setting a record for the sales of Chinese car brands in Russia. In 2021, Chinese brands will have a record 7.5% share of the Russian automotive market, double that of 2020. According to foreign media reports, Dmitry Andreev, general manager of the Russian automotive website Autospot.ru, said that the sales of Chinese cars in the Russian market will be the same as the sales of Japanese cars, and may even surpass them and rank fourth. This may seem incredible, but given the deficit, inflation rate, Russian income levels and other market factors, it is entirely possible to achieve this.
In the first 11 months of 2021, Chery sold 37,000 units in Russia, ranking tenth in sales, Haval ranked 12th with 31,000 units, and Geely sold 22,000 units, ranking 14th. Sergey Burgazliev told first financial reporters that Chinese brands in the Russian market, Haval, Geely and Chery are TOP-3.
"Their strategy was clear, with Haval investing about $500 million to build four major process plants that went into local production. Geely has a joint venture with the Belarusian government, and Russia is their main market. According to the agreement between Russia and Belarus, Geely does not have to pay any taxes and royalties to the Belarusian government, which is why Geely maintains good prices. Chery is a 100% importer who is looking for possibilities for local production, but they don't invest as much money as Haval. Sergey Burgazliev told reporters that Haval has a good network of products and distributors, they have invested a lot of money in operations and strategic marketing, and believe that the future of the Great Wall is bright. He believes that in the future, 2-3 TOP-3 Chinese companies will gain a 25% share of the SUV and crossover market. The only challenge for Chinese brands is that Russian officials don't want Chinese brands to become the leaders in the Russian market.
"In the past, in the entire passenger car market, the terminal retail price of more than 90,000 to 100,000 yuan was not easy to sell. This year's (2021) market can not understand at all, the average terminal retail price of Chinese brand cars has reached 140,000 and 150,000 yuan, which was completely unimaginable before. Wang Peng told reporters that for Chinese brands, in the first stage of competition, Lada is the biggest competitor, in the past Chinese brands in the Russian market to take the cost-effective route, the products are mostly low-end passenger cars. With the layout in recent years, Chinese brands have begun to develop upwards, and Haval, Geely and Chery have begun to focus on Korean cars.
From the perspective of the Russian market structure, Lada and Hyundai and Kia occupy a large part of the market share, followed by other brands mainly in Japan and Germany, and the market share is not high and scattered. Since the beginning of this year, Chinese brands have developed strongly and become a new force. Wang Peng analyzed that the reason for the rapid development of Chinese brands this year is that one is that there are problems in the supply of other brands of cars, and the price increase is higher; second, some Chinese brands are produced locally, and localization has promoted development.
The reporter learned that Russia's car sales model is similar to the Chinese market, using a 4S store sales model, while there is a large car dealer group. Under normal circumstances, a 4s store can only represent one brand, but the 4s store of Chinese brands still adopts the method of mixed exhibition hall. That is, a 4s store sells several Chinese brands at the same time.
"Chinese brands are constantly rising, but they still can't solve the problem of mixed showrooms. For example, in 2020, dealers were required to build single stores to sell the Haval brand, but in the end only the Moscow region met such a requirement, and other regions could not achieve it. This is mainly because the efficiency of single stores is low, and dealers who build single stores to sell Chinese brands cannot share the cost, which will cause losses. Wang Peng said.
Is there a chance for electric vehicles?
In August 2021, the Russian government approved an electric vehicle development strategy that plans to reach 10% of the overall electric vehicle production by the end of 2030. The strategy is implemented in two phases: 2021 to 2024 and 2025 to 2030. In the first phase, the production of electric vehicles will reach the level of at least 25,000 units per year, and more than 9,000 charging stations will be established. At the same time, to encourage consumers to buy and use electric vehicles, the government will provide incentives, including preferential loan and lease terms. In addition, from 2022, electric vehicles will be driven free of charge on Russian toll roads.
In Wang Peng's view, the government's incentive policy for electric vehicles is in its infancy, and no large-scale subsidy policy has been introduced. From the perspective of policy direction, first invest money to encourage infrastructure construction, second, foreign-funded enterprises may give certain preferential policies for the production of electric vehicles in Russia, and third, they may give certain preferential policies on the terminal, such as electric vehicles are exempt from vehicle and boat tax, free parking, etc.
"Rada produced an electric car but then it didn't work, and JAC launched an electric car, but it didn't sell well." Wang Peng told reporters that on the one hand, Russia is not perfect in charging infrastructure, on the other hand, Russia has cold weather and serious battery recession. In addition, Russian cars are relatively cheap, and electric vehicles are not very competitive.
According to the data, in the first 11 months of 2021, the sales of new energy passenger cars in Russia were only 1721 units, an increase of 269.3% year-on-year. In November, the top three models sold new energy vehicles were Porsche's TAYCAN, Tesla's Model 3 and Audi's E-TRON.
"There is no substantive initiative in terms of electric vehicles at present, and the government wants the development of electric vehicles to put up a banner for Russia. But I don't think the Russian electric car market will grow much in the next 2-3 years. At present, the government has only come up with an idea, and any car company that wants to lead in the field of electric vehicles can discuss with the government. In 2022, tariffs on electric vehicles will be raised from 0% to 15%, which is to stimulate OEMs to bring EV production to the Russian market. For most Russian customers, electric cars are quite expensive. Taking Great Wall Motors as an example, if they can offer some models of about $25,000 to $40,000, this may be a price that is more suitable for the Russian market. I personally hope that PoleStar, Xiaopeng Motors, Ideal and Changan Automobile will bring electric vehicles to the Russian market. Sergey Burgazliev told reporters.
(At the request of the interviewee, Wang Peng is a pseudonym in the text)
![Saint Seiya: If you play against each other in the Zodiac, can Taurus beat Rada? Lada would lose miserably[fig]](data:image/gif;base64,R0lGODlhAQABAIAAAP///wAAACwAAAAAAQABAAACAkQBADs=)