Head image source: stills of "Journey to the West"
A few days ago, a video of A Tiggo 8 white body appearing at the UAZ factory in Russia caused an uproar in the local area. As the only existing "true independent brand" in Russia (of the other two brands, Lada was acquired by Renault, GAZ focused on commercial vehicles), UAZ sales have been declining in recent years, and Chery's entry has given the company hope of turning over.
The Tiggo 8 white body unveiled at the UAZ plant
Russian officials also seem to have high expectations for Chinese brands. Denis Manturov, minister of industry and trade of the Russian Federation, said in an interview that luxury car brands that withdrew from Russia would be replaced by Chinese automakers.
For a time, Chinese brands became the "saviors" of the Russian auto market. In the view of many people in the industry, the current difficulties of the Russian automotive industry are a once-in-a-lifetime opportunity for Chinese brands committed to achieving internationalization.
However, there are also many troubles for Chinese brands at present, the shortage of parts supply, the price increase of raw materials has slowed down their development in the local market, in the face of the above opportunities, do Chinese brands still have enough confidence to follow up? Is Russia, the eighth-largest auto market in the world with annual sales of around 1.7 million vehicles, worth the risk of Chinese brands?
#上
Sales collapsed under multiple effects
The Russian auto industry did not start late, as early as 1907, the country already had a large number of well-known car brands such as Russo-Balt, Puzyryov, Lessner, and had already begun to hold auto shows in Moscow. In contrast, Mitsubishi's first production model, the Mitsubishi A model, was introduced in 1917, and Toyota's first production car, the AA, was only introduced in 1935. The growth of Korean brands is even later, and by the time the Korean auto industry first started in the 1970s, the annual production of Soviet cars had reached 2 million (1975).
The russian market's top seller, Rada Vesta, unfortunately the brand has long been acquired by Renault
But it is clear that starting early does not mean good development, and in the decades since, the overall development of the Russian auto industry seems to have stagnated, not to mention compared with Japan and South Korea, even compared with China. Domestically, the problem of the "big but not strong" of the automotive industry is often discussed, and in Russia, the problem is obviously more serious. According to data released by the European Business Association, in March this year, only 3 of the 56 car brands in the Russian market were local Russian brands. Among them, the first sales volume of Lada has long been acquired by Renault, GAZ is mainly focused on commercial vehicles, and the remaining "true independent brand" UAZ has opened the preparation for the production of Tiggo 8 as mentioned above.
In such a situation, it is not difficult to imagine what kind of blow it will bring to the Russian auto market and Russian consumers once the overseas brands are collectively shut down. And under the supply chain crisis and some well-known blows, this tragedy really happened.
Since the beginning of March, Toyota, Honda, Hyundai, Kia, Mercedes-Benz, BMW, Audi, Volkswagen, Volvo, Jaguar, Land Rover, Bentley, Aston Martin and other brands have either announced the closure of their factories in Russia or announced the cessation of export sales of vehicles to Russia. Renault's Rada is still selling stock vehicles, but its plant has also stopped production.
When the Mercedes-Benz factory in Russia was put into operation in 2019, Putin was also invited to attend the opening ceremony
Another major background of this round of suspension and suspension of sales also stems from the supply of parts. Since the beginning of March, due to uncertainties in business stability and safety, international shipping giants such as Maersk and MSC Mediterranean Shipping have successively announced the suspension of new orders for sea, air and intercontinental rail to and from Russia.
Volkswagen has previously discussed the resumption of production plan: because Ukraine and Poland can not transit, can only consider bypassing Turkey, transport parts to Georgia, and then find a way to enter Russia, in order to resume production in July, but the cost of this round of detour transportation can be imagined.
Looking at the map of Europe, it is not difficult to find out how many wrongdoings the public's imagination has to go
For a time, the Russian car market was in turmoil, and sales plummeted. According to the data, in March 2022, the Russian auto market (including passenger cars and light commercial vehicles) sold a total of 55,000 new vehicles, a year-on-year decline of 62.9%. At the same time, tougher sanctions from the EU are coming.
On April 5, local time, the European Commission issued a statement on its official website saying that the chairman of the commission, Ursula von der Leyen, proposed to impose a fifth round of sanctions on Russia. The impact of the sanctions on the Russian auto industry mainly includes the following three points: first, it prohibits Russian ships from entering the ports of EU countries, and also prohibits Russian and Belarusian road transport companies from operating in Europe; second, it prohibits the export of semiconductors, automobiles and transportation equipment to Russia; third, it prohibits transactions with four Russian banks, including the Russian Foreign Trade Bank.
That is to say, even if you subjectively do not want to stop, the parts supply system of those multinational car companies has been interrupted, and they do not have the ability to continue to operate in the short term. However, will all this be an opportunity for Chinese parts companies and Chinese car brands?
#中
Opportunities for Chinese brands?
The first thing to say is that Chinese brands do have a wide layout in Russia and neighboring countries. For example, Great Wall Motor's Tula plant invested in Russia was put into operation in 2019, with an annual vehicle production capacity of 150,000 units, mainly producing Haval F7, Haval F7x, Haval H9 and other models. Brands such as Chery and Geely have factories in Belarus.
Great Wall Motor's Tula plant in Russia
Judging from the sales figures, these companies that are actively deployed in the local area have indeed received due results. According to the data, from January 2021 to February 2022, the cumulative sales of the Haval brand in Russia were 45,864; Chery was 42,845; and Geely was 28,091. Although the above achievements cannot be compared with the first-line brands in Russia for many years, such as Hyundai, Kia, Toyota, Volkswagen, and Renault, they have also surpassed strong brands such as Mazda, Honda, Peugeot, Citroen, Ford, Chevrolet, and Mitsubishi.
In addition, in terms of transportation, the railway transport, air transport, sea transport, sea and rail intermodal transport routes between China and Russia are in normal operation. Production equipment, machinery, etc. can be imported from Chinese related enterprises, and according to Ross automotive consultant Dmitry Babansky, Local Russian automakers can also find suppliers of plastic products, fuel tanks, exhaust pipes, steering wheels and other parts from their own countries to replace.
But one of the difficult to replace is the car standard chip, for this aspect, Chinese car companies in their own turf also suffered from this, the base plate is unstable, naturally will not transfer a batch of chips from the domestic market to Russia, so we can see that since the beginning of the Russian production suspension in March, Haval, Geely, Chery and other brands have also seen a large-scale sales decline. According to the data, Haval's sales in Russia in March were 1573 vehicles, down 44.5% year-on-year; Geely's sales were 1492 vehicles, down 13.9% year-on-year; Chery (excluding Xingtu) sales were 498 vehicles, down 79.2% year-on-year.
Sales performance of some Chinese brands in the Russian market in Q1 2022 (source: European Business Association)
In the Russian market, There is another point that Chinese brands lack - luxury car market share. Nowadays, luxury brands such as Mercedes-Benz, Audi, and BMW have expressed their position, either suspending production in Russian factories or suspending the export of complete vehicles to Russia. As a result, the Russian luxury car market is now in a vacuum, and consumers even have no cars to buy. In this regard, Russian officials have great confidence in Chinese brands. Denis Manturov, Minister of Industry and Trade of the Russian Federation, said in an interview that luxury car brands that withdrew from Russia would be replaced by Chinese automakers. At the same time, he revealed that the relevant Russian departments are discussing the matter with Chinese automakers.
But the luxury car segment is precisely the area where Chinese brands are least good at it in Russia today. Among them, there is not only the problem of brand history accumulation, but also the problem of market positioning.
For a long time, some Chinese brands have always regarded Russia as a low-potential energy market, and a Chinese brand executive once made it clear with the car market, "The domestic market competition is becoming more and more fierce, and the model replacement cycle is getting shorter and shorter." As for the previous generation of models that have been replaced, the best place to go is the low-potential market in Russia, and local consumers recognize it anyway. ”
In addition to positioning, China itself also lacks luxury brands. In China, the only recognized luxury brand among Chinese brands is Hongqi, and at present, the passenger car owners exported by FAW Group to the Russian market should be mainly based on the Besturn brand, and the absolute sales volume is not high, with cumulative sales of only 3476 vehicles between January 2021 and February 2022. Considering Russia's high automobile import taxes and value-added tax, even if there is a plan to export hongqi, it is difficult to seize the share of local luxury brands in the short term without local production.
#下
The strategic importance of the Russian market
In recent years, for the three words of internationalization, every Chinese car company is no stranger. For the meaning of internationalization, different car companies also have different understandings, but in summary, they are only the following three - open source, throttling and strengthening brand power. The former two can bring more market sales and profits, further amortize model development and production costs, and exert scale effects. The latter is conducive to enhancing brand reputation and recognition, thereby enhancing brand value and influence.
Wei Jianjun, chairman of Great Wall Motor, is a solid supporter of local car companies taking the international route. In his view, even if the development of Chinese brands is good, if they are only trapped in the domestic market, the monthly sales scale of their explosive models is only 10,000 vehicles, which will never be better than the international models that sell millions of vehicles a year under multinational car companies.
The best representative of international models, the Corolla, has accumulated sales of more than 50 million vehicles worldwide
"As long as internationalization can go through, it is not difficult for models to explode." A certain model of our Chinese brand, the product force is not strong at all, the annual sales in China is 5,000 vehicles, but in the Southeast Asian market can sell 200,000 vehicles a year, which is the blessing brought by internationalization. ”
However, due to the problem of brand accumulation and technical reserves, the path of Chinese brand internationalization is more to choose the so-called "low potential energy market" such as the Middle East, Southeast Asia, South America, Africa, etc., and even if it has developed so far, it is difficult to enter the high potential energy market such as North America and Europe. Recently, due to the rise of the trend of intelligence and electrification, Chinese brands have begun to squeeze into European countries such as Norway by replacing the track of intelligent electric vehicles, but in the field of fuel vehicles, there is still little effect.
At this time, the strategic significance of the Russian market is reflected. The deep cultivation of Chinese car companies in the country's automobile market is not only a share of one city and one place, but a springboard with the world's top ten, which is enough to radiate the entire Eastern European market. If you have a firm foothold in Russia, you can further enter Turkey, Ukraine, Poland, the Czech Republic and other countries, and even look forward to Western Europe in the later stage, which is much less difficult than directly entering the modern automobile industry center of Germany.
Boyue "pseudonym" in Malaysia is Proton X70
In fact, after Geely acquired Proton, it has achieved the purpose of radiating the entire Southeast Asian automobile market through the Malaysian market. After the completion of the acquisition, Boyue, Binyue and other models have been introduced into the local market, renamed Proton X70, Proton X50 for sale, the effect is quite good, the former even once refreshed the Malaysian single-month SUV sales record. According to Geely's current plan, by 2027, the overall sales scale of Proton will reach 500,000 vehicles, and at the moment when competition is becoming more and more fierce, this increase is undoubtedly a shot in the arm for Geely's overall development strategy.
However, unlike Malaysia, the Russian market has either disappeared or been acquired by companies such as Renault. Want to stand firm in the Russian market, can only be the identity of foreign brands to fight steadily, today's Russian auto industry changes, for these Chinese brands, is both a challenge, but also an unprecedented opportunity, I don't know if these brands are willing to take risks to seize this opportunity?
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