Central Asia for production growth
Geely’s 5G factory
Geely
As sanctions, investor pressure, and rising import fees reshape the Russian market, Chinese OEMs are pulling back and redirecting investment to Kazakhstan and Uzbekistan. While Great Wall, Geely, BYD, and others scale up new plants across Central Asia, the region is emerging as a safer production base and an indirect gateway to Russia’s still-lucrative demand.
When Russia invaded Ukraine, European, Japanese and Korean
vehicle companies pulled out of vehicle manufacturing in Russia, as political pressure
hit and sanctions bit. Renault had to walk away from its many years of
investment in AvtoVAZ. Technically, it has a right to re-purchase its stake in
the company although that seems unlikely. Nissan sold its factory to a local
company, as did Hyundai. A Russian investor bought the Mercedes van factory
near Moscow and for a while produced Chery cars from kits under licence.
Volkswagen, Toyota, GM, Ford and Stellantis went down similar paths or just
shut down their plants entirely. Chinese kit assembly grew, but imports
mushroomed.
Chinese OEMs fill void left by other carmaker withdrawals
Great Wall Motor eyes 300,000-unit European plant by 2029
Great Wall Motor is exploring its first European plant, likely in Spain or Hungary, aiming for 300,000 vehicles a year by 2029 to revive its regional sales.
Ilkhan Ozsevim
As Chinese companies increased shipments into Russia, to fill a void and meet
demand, Chery, Great Wall, Geely and Changan quickly replaced international brands
in positions 2 to 5 in the Russian sales rankings, Lada remaining supreme at
number 1. By the end of 2024, Chinese brands had secured 60% of the Russian market.
While this took place largely untrammelled to begin with, the Russian government soon indicated however
that it wanted automotive production to take place in Russia, partly to stop the
flight of capital abroad as imports surged.
While Chery decided that involving itself in Russia is not worth the sanctions risk and reputational damage with international investors, Great Wall is taking the opposing view…
However, as well as being pressured by the Russian government
to boost investment in Russia, to make more cars, or at least increase the
local content of imported kits, Chinese companies began to face a different pressure
from another direction. Chery, for example, which is seeking a listing on the
Hong Kong stock exchange, came under pressure to reduce its activity in Russia
in order to attract international investors. Exiting the country, Chery cited
additional import fees which Russia has levied as a further reason to reduce its
sales activity and any manufacturing investment in the country. Co-incidentally
Chery has also stopped assembling in Iran and Cuba to avoid potential sanctions
from the international community
While Chery decided that involving itself in Russia is not worth
the sanctions risk and reputational damage with international investors, Great
Wall is taking the opposing view. Great Wall avoids additional import duties (described
as a one-off advance recycling fee) because it has a full manufacturing plant
at Tula, south of Moscow. This plant made over 130,000 vehicles last year and
has an exemption from local taxes until 2028. Output is due to rise to 200,000
per year and the company is also producing vehicles from CKD kits in another facility
in the interim.
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Ilkhan Ozsevim
A multi-brand factory, called AMMKZ, has recently begun producing models from Changan and Great Wall and a plant, called Allur, is due to produce vehicles from Soueast which is a Chery brand
Other Central Asia countries offer production opportunities
Geely meanwhile has stayed out of producing vehicles in Russia but has a joint
venture in Belarus which allows it to ship vehicles into Russia without
additional import fees; whether this will be retained in the longer term as
Geely expands with its own brands into Europe remains to be seen. And as the
Chinese cool on investing in Russia, they are looking at two neighbouring countries
with growth potential and from which exports into Russia – which remains an important
market – appear to be safe from sanctions, for now at least.
Geely is building a factory in Almaty in Kazakhstan which
will start production in 2027, making the Coolray crossover and Emgrand sedan.
This will add to the country’s existing production by Hyundai, Kia, Chevrolet
and the Chinese brands Jetour and JAC. A multi-brand factory, called AMMKZ, has
recently begun producing models from Changan and Great Wall and a plant, called
Allur, is due to produce vehicles from Soueast which is a Chery brand.
Kia is the biggest recent non-Chinese investor, having invested
US$310m in a new plant in Kostanay, which has an initial capacity of 70,000 units
a year; it started production with the Sorento and will soon add the Sportage.
Alongside the well-established Chevrolet Onix and Cobalt, the Kia models are
expected to be highest volume vehicles made in Kazakhstan. Officially, domestic
demand and surrounding central Asian countries are the target markets but the border
with Russia is notoriously porous and it is likely that many Kazakh-made
vehicles will end up in Russia, any official sanctions notwithstanding.
While Russia remains an economic pariah and an investment risk, the Chinese especially, and Hyundai-Kia too, have no qualms it would seem about investing in central Asia
Partnering with local producers
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China has moved from national champion to global force in vehicle manufacturing, exports, and electric mobility. Overcapacity at home, rapid development cycles, battery dominance, and fast-rising overseas investment are driving a profound shift in the industry.
Meanwhile in nearby Uzbekistan, where Chevrolet was also once
the dominant brand courtesy of a local manufacturing joint venture, Chinese
brands are becoming increasingly common. BYD recent imports success has been facilitated
by establishing a local assembly operation, with 50,000 units annual capacity initially.
Some press reports have suggested that capacity there could be raised to half a
million a year; it would be unwise to bet against BYD achieving this volume in
the next decade or so given its growth profile elsewhere. BYD moreover is not
the only Chinese company planning to produce in Uzbekistan, with Great Wall having
recently started kit assembly there; full manufacturing is likely to follow.
Meanwhile two local companies – Runking Motor and Central Asia Motors – will
produce Changan models in the near future.
While Russia remains an economic pariah and an investment
risk, the Chinese especially, and Hyundai-Kia too, have no qualms it would seem
about investing in central Asia; Kazakhstan and Uzbekistan may currently be minnows
in terms of overall volumes but as their governments set up import barriers,
with tariffs and duties, investment in local production is the only way for
would-be entrants to go. Watch this space.
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