In April, 2022, the sales volume of new cars in Russia was 32706, a year-on-year decrease of 79% From AEB

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According to the data released by the European Business Association (AEB), in April, the sales of new cars in Russia fell 79% year-on-year to 32706, the largest year-on-year decline since AEB counted the sales of new cars in Russia in 2006. Russia sold 294000 cars in the first four months of this year, a year-on-year decrease of 43%.

A report from the Russian National University of economics shows that Russian automobile production is heavily dependent on imports, and more than half of the added value of the industry comes from abroad. In addition, the zero inventory management mode adopted to improve efficiency, the impact of sanctions from western countries will soon appear in the Russian automobile industry.

The impact of the conflict between Russia and Ukraine on the Russian car market has exceeded the impact of the epidemic control measures. Where will the Russian automobile industry go?

Foreign capital retreats in droves

As for the sharp drop in Russian auto sales in the past two months, AEB explained that this was mainly because after the escalation of the conflict between Russia and Ukraine, the sanctions imposed by western countries on Russia caused many auto companies to suspend their operations in Russia, which seriously affected Russian auto production.

After the conflict between Russia and Ukraine began, most foreign-funded enterprises fled Russia one after another. According to a McKinsey Research Report, nearly 70% of the 281 Fortune 500 enterprises that have entered Russia have shrunk or exited the Russian market. Mainstream multinational car companies such as Volkswagen, Honda, Ford, BMW, Mercedes Benz, general motors, Volvo, etc. have all announced the suspension of car exports to Russia. Many car companies with factories in Russia have even announced the suspension of production.

Russia’s automobile industry is relatively weak, and most of the automobile market share has already been carved up by foreign brands. Renault (including LADA controlled by Renault) has a market share of nearly 30% in Russia, ranking first in the list; The second is Korean cars. Kia and Hyundai have occupied the second and third places in the list of Russian car sales for a long time. Because of this, the collective actions of foreign-funded enterprises have a great impact on the Russian car market.

In addition to the loss of production, the Russian automobile supply chain also hides a greater crisis.

Russia’s automobile supply chain relies on imports. A report released by Shanghai Beidou Exhibition Co., Ltd. shows that only about 35%~37% of Russia’s auto parts are locally produced, while the market share of imported auto parts is as high as 63%~65%. Take 2019 as an example, the main importing countries of Russian auto parts are Germany, Japan and China.

After the escalation of the conflict between Russia and Ukraine, many international auto parts giants announced the suspension of delivery to the Russian market, including Bosch, ZF, Haila, etc. In addition, some parts suppliers began to move their production lines outward. Nokia, a Finnish tire manufacturer, said that it had transferred its key production lines from Russia to Finland and the United States.

“Russian auto parts are facing great difficulties. 70% to 80% of Russian passenger car parts are still imported. Russian auto parts suppliers’ inventory can only maintain production for 3 to 4 weeks.” Sergey burgazliev, an analyst of the Russian automobile industry, told reporters.

At present, many auto companies have had to suspend the production of Russian factories due to the depletion of auto parts, including stellantis group, Toyota, Renault, Nissan, Hyundai, etc.

The decline of sales volume of foreign-funded automobile enterprises was significantly higher than that of Russian domestic automobile enterprises. In April this year, the sales volume of LADA (Renault holding), Kia, Hyundai and Renault, the top four, fell by 77.4%, 75.9%, 73.2% and 84% year-on-year respectively, while that of gaz and uaz, the fifth and sixth local Russian auto companies, fell by 61.5% and 36.4% year-on-year respectively.

Since March this year, a number of chip design and manufacturing giants have announced sanctions against Russian semiconductors. Apple, Samsung, Intel and AMD have stopped their sales in Russia. Qualcomm, one of the world’s largest chip manufacturers, has also stopped providing chips to Russia. Arm has stopped providing products and support to Russian customers and partners.

For a long time, the Russian semiconductor industry has lacked the ability of independent supply. “Europe and the United States have mastered the core of chips, and the sanctions against Russian chips may have a great impact on the supply of automotive chips.” The management of an independent auto company in the Russian auto market told reporters.

Some Russian insiders said that there would be a serious shortage of chips in Russia. If Russian chip manufacturers choose to replace the processor architecture, it is estimated that it will take at least 2 to 3 years, and the R & D expenditure will be as high as 1billion rubles.

The collapsing market may not be able to recover

The supply of spare parts is almost “cut off”, foreign-funded auto enterprises withdraw from the market, and consumption is weak. This year, the Russian auto market may suffer the largest decline in the past three decades. Previously, according to the prediction of the largest dealer in Russia, the demand of the Russian auto market will fall by half this year, which is similar to the new car sales level of Spain, and the population of Spain is only one third of that of Russia.

In 2021, the sales of new cars in Russia increased by 4.3% year-on-year to 1.667 million, which means that the sales of new cars in Russia may fall below 840000 this year. Since the 21st century, the annual sales of new cars in Russia have exceeded 1million.

In the Russian automobile market, the fluctuation of production and sales volume is closely related to the economy and exchange rate. According to relevant statistics, the trend of Russian car market is almost the same as that of its GDP.

The first wave of sales peak of the Russian car market appeared in 2008. After the global financial crisis, Russian car sales almost halved in 2009, and then the car market slowly recovered. Four years later, in 2012, there was the second wave of sales peak in the Russian car market. In that year, the sales volume reached a record high of 2.94 million units. In 2013, although there was a slight decline, the sales volume remained above 2.9 million units. At that time, the Russian car market ranked second in Europe, second only to Germany.

However, after the Crimea incident in 2014, western countries began to take sanctions against Russia in succession. According to CEIC data, in the two years before and after the Crimea incident, Russian automobile sales showed a negative year-on-year growth trend almost every month.

Since then, the Russian car market has never recovered. From 2015 to 2021, Russia’s automobile sales volume hovered between 1.4 million and 1.8 million, leaving only 50% or 60% of the historical peak.

Since the Crimea incident, the Russian economy has not recovered to its previous level. Russia’s per capita GDP reached a record high of nearly US $16000 in 2013. In 2016, the figure was only about $8700, almost halved. After years of recovery, the figure will only return to $12000 in 2021.

VTB capital analysts said that demand is unlikely to recover due to the decline in real income, making the automotive industry the most affected industry in Russia.

European car companies bear the brunt

The impact of sanctions by western countries on the business of multinational car companies in Russia is obvious.

The above-mentioned management of independent auto companies told reporters that after the Crimea incident, American auto companies have suffered a great impact in the Russian market due to the impact of US sanctions on Russia. At present, they have basically retreated. Chevrolet has withdrawn from the Russian market, and Ford only retains its commercial vehicle business, which has also led to the poor performance of American cars in the Russian market in recent years.

In April this year, Ford was the only American brand among the top 20 Russian car market sales. In the first four months of this year, Ford sold 4423 vehicles, accounting for only 1.5% of the market.

After the escalation of the conflict between Russia and Ukraine, western countries increased sanctions against Russia. What followed was that Ford, the only American car company remaining in the top 20 rankings, also played a “retreat drum”. Ford announced not long ago that it would close two assembly plants and one engine plant in Russia and formally withdraw from the Russian passenger car market. In addition, in terms of commercial vehicle business, Ford has already announced its suspension until further notice.

During the conflict between Russia and Ukraine, European countries also continued to join the ranks of sanctions against Russia, and the most affected car companies were replaced by European car companies.

In April this year, the year-on-year decline in sales of the top ten European auto companies was greater than the overall level of the auto market, among which, the year-on-year decline of Renault, Skoda and Volkswagen were 84%, 89.3% and 91.3% respectively.

As early as early March, Volkswagen Group said that it would suspend production in Russian factories, and the recovery time would be determined. At the same time, it would also stop automobile exports to the Russian market.

Compared with Volkswagen Group, Renault faces a dilemma. Before the outbreak of the conflict between Russia and Ukraine, Russia was Renault’s second largest market. Renault has successively invested at least billions of dollars in Russia, accounting for nearly 30% of the market in Russia. It is the European car company most severely affected this time. On May 9, Renault CEO Luca de MEO said that the company would decide the future of its business in Russia in the next few weeks, and the negotiations were still in progress.

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