Recently, the Ministry of Industry and Trade announced that in 2024, 700 thousand passenger cars will be produced in Russia and in 2035 alone the production volume will reach 1.6 million units. Let me remind you that in 2022 more than 600 thousand new cars were produced and about 250 thousand in seven months of this year. Thus, reaching 700 thousand can be considered an optimistic scenario that will come true in the event of the launch of new production facilities, the correct pricing policy of car manufacturers and the absence of new shocks, such as a sharp increase of exchange rates and new types of sanctions in vulnerable areas of the economy. As for plans for the more distant future, the figure of 1.6 million cars by 2035 is quite realistic; For example, in 2020, 1.4 million were already manufactured in Russia.
Chinese automakers are actively filling niches left vacant after the departure of European, Japanese and American manufacturers. Expanding the number of brands represented in the Russian Federation, as well as a dealer network, an adequate pricing policy and the absence of problems with the supply of new cars may become the main requirements for Chinese models to account for 60 percent. sales by the end of 2023.
However, the domestic automotive industry also has leading chances in 2024, especially taking into account the planned launch of new models such as Moskvich 5.8, Lada Niva Legend and Niva Travel with new engines. AvtoVAZ plans to produce 600 thousand cars next year, and if preferential government programs are resumed, this brand will most likely lead the sales ranking.
Information has appeared in the media about the revival of production of the legendary Volga and Pobeda, but no specific plans or real deadlines have yet been announced. I think motorists remember the attempt to revive the Volga in 2008-2010 with the Volga Siber model. In the near future, a joint project with colleagues from China may appear. The niche itself is not unlimited. Even if something hits the production line, the new brand will not immediately occupy a large share of sales in the Russian car market; It will be necessary to build a network of distributors and services, and a loyalty program.
Under sanctions, Russian car factories must look for alternative suppliers, redevelop equipment and conduct tests.
It is also necessary to solve a number of problems that affect the entire industry. Therefore, many automobile production control systems and supply chain automation systems were foreign-made or controlled by foreign suppliers. Now there are practically no analogues, which negatively affects the efficiency of companies. The automotive industry is short of key personnel: many IT and production management specialists have moved abroad. Furthermore, not all industry representatives are yet ready to work electronically. However, in 2024 electronic document management will be mandatory for everyone. Legal entities that wish to remain in the market have enough time to adjust their companies’ policies.
Another problem is Russia’s disconnection from the SWIFT system, which caused almost all transactions to be blocked. However, today most representatives of the automotive industry have found a way out, including the opening of reliable legal entities in friendly countries.
The main problem, of course, remains the lack of components. This was observed even before the introduction of sanctions due to the disruption of supply chains during the pandemic and the trend towards digitalization and automation. The shortage affected not only Russian representatives of the industry: for example, the German Audi suspended its two most important factories in Germany in 2021, transferring 10 thousand employees to part-time work. Nor could it resist the Japanese giant Toyota, which at the beginning of the same year announced a sufficient supply of electronic products in its warehouses and, in the fall, reduced production at Japanese and North American plants by 40 to 60 percent. Ford, Fiat, Chrysler, Nissan, Suzuki and Volkswagen all had similar problems.
Under sanctions, Russian car factories have to look for alternative suppliers, redevelop equipment and conduct tests. The situation is aggravated by the lack of own technologies of the required level, the lack of a production base, equipment and a shortage of personnel. This is a challenge that is receiving a lot of attention and resources. Several national companies are working on the production of electronic components and solutions based on them, especially local ones, so the supply will increase in the near future.
It is important to create a normal competitive environment in the domestic automotive industry without distortions. This will create conditions for the development of related industries.
The substitution of technologies and the base of elements (components), that is, the change from European to Chinese suppliers, is progressing at a good pace. But this is a temporary measure that will only lead to a change in addiction. The real solution to the problem is the development of our own autonomous production. This process will take anywhere from several years to decades. Achieving a competitive price level will allow access to volumes provided only in conjunction with exports.
It is possible to avoid any sanctions, but all gray schemes increase costs for producers and, consequently, the price for the consumer. The dynamics of the ruble exchange rate have the same influence. Its purchasing power, reflected in general inflation, even affects completely local components. To reduce the price for the consumer, production can be created in special economic zones. Residents can refund VAT on imported equipment, minimizing the costs of production processes and depreciation.
An increase in recycling fees and other protective fees could harm the Russian auto industry, hindering local manufacturers’ sense of the real situation. When the crisis passes and tariffs are lifted, we run the risk of discovering completely non-competitive local solutions. Most likely, the basic goals of localizing the production of ABS, ESP units, steering mechanisms and electric motors will be achieved by 2025. But the level of localization will be far from what was expected.
About the Author
Dmitry Filatov is an expert in the automotive industry, co-founder of the Three Points Manufacturing company (part of the holding company for the production of devices and telematics ERA-GLONASS in the Orel free economic zone).