Key Takeaways
Western car manufacturers fled Russia after its invasion of Ukraine, leaving the sector open for China’s expansion there.
In facilities built by VW, Mercedes and Nissan, Chery, China’s largest car exporter, is making conventional and EV cars and SUVs to meet Russian demand.
Many of the vehicles are pre-assembled in China’s factories and finalized for sale in Russia as Russia pushes for more localized production.
Chinese brands are now accounting for over half of Russia’s new car sales.
Chinese carmaker Chery has started assembling cars in Russia at three factories vacated by Western rivals: Volkswagen, Mercedes-Benz and Nissan. Chinese carmakers have obtained more than half of Russia’s vehicle market sales since most Western counterparts left the country following Russia’s February 2022 invasion of Ukraine. They are also accounting for more of Russia’s domestic production, highlighting China’s more influential role in Russia’s changing manufacturing sector and economy since the invasion of Ukraine. In addition to finished car imports into Russia, Chery, which makes up almost a fifth of Russia’s passenger car sales, is importing nearly finished cars and completing the assembly in the three Russian factories. Russia plans to raise fees on imported cars by doubling the scrappage fee, which all car producers must pay, beginning in 2025 while increasing state support for locally made vehicles, which encourages foreign carmakers to localize production in Russia.
Chery, China’s biggest car exporter, is betting on strong demand in Russia as Russia’s domestic market struggles with limited output and underused production capacity. While Chery is supplying the Russian market with passenger cars and assembling them there, it does not plan to build or buy its own factories in Russia. According to Chery’s global expansion plans, the company expects to enter more than 60 new markets in the next three years. For example, by the end of 2025, the company plans to launch three SUV models for each brand, with a mixture of fully-electric, fossil-fuel and hybrid cars to serve different parts of Europe as EV sales are higher in western European countries than in southern markets. In the European Union, Chery’s China-made electric vehicles will be subject to an additional duty due to the European Union’s decision to place tariffs on imports of electric vehicles made in China.
Chery has received approval for safety standard compliance for the models it wants to manufacture in Russia. Chery is manufacturing ‘s Tiggo SUV and Exeed models, overseen by the three plants’ new Russian owners. At the St. Petersburg Automobile Plant, sold by Japan’s Nissan to the Russian state in late 2022, the Tiggo 7 is being rebranded as the Xcite X-Cross 7. Xcite won Russia’s “best new brand” at an SUV awards ceremony in late September. The plant launched production in January, working with an “international partner,” and has sold 3,447 cars between May and September. Rebranding a Chinese car as Russian is similar to the approach taken with the Soviet-era Moskvich, which was revived at Renault’s former factory in Moscow in 2022. The Moskvich was a rebranded compact crossover made by China’s JAC.
Chery and Russia want to minimize publicity about Chery’s production in Russia, as China’s cooperation with Russia has drawn scrutiny from the West. The West wants to clamp down on efforts that may help Russia prosecute its invasion of Ukraine.
In Kaluga, two hours south of Moscow, car dealer AGR Automotive is assembling Chery’s Tiggo crossovers in small volumes at a plant with annual capacity of 225,000 vehicles, overseen by Chery engineers. In September, 142 Chery Tiggo crossovers were sold, more than double the total in October 2023. Chery, along with brands it owns like Exeed and Omoda, almost quadrupled its new car sales to just over 200,000 vehicles in Russia in 2023, compared with 2022 and has already surpassed that figure in 2024. The Kaluga plant, which sat idle for almost two years as its former owner Volkswagen negotiated an exit deal, is expected to produce 27,000 cars this year. Chery’s export strategy is known as “semi knocked down” (SKD), with Tiggo models arriving at the Kaluga plant almost completely assembled. Chery pays the plant’s owners a fee to finalize assembly there.
In Esipovo in the Moscow region, another plant is producing Chery’s Exeed VX, a mid-size luxury crossover. The plant, sold by Mercedes-Benz to car dealer Avtodom in April 2023, has as annual capacity of 25,000 vehicles. Avtodom has been responsible for the plant’s operations since April 2023.
Russia’s Car Market
From May 2023 to April 2024, more than 20,500 new electric vehicles were sold in Russia, a jump of about 350% on the previous year, with Chinese brands accounting for over half of sales. Russian carmakers sold fewer than 4,000 new electric vehicles in that time, with 1.28 million passenger cars sold overall. Russia’s EV market is developing slowly due to a lack of charging infrastructure and its reliance on petroleum-fueled vehicles as it has plentiful oil and gas resources. Despite that, more electric vehicles were sold in that May 2023 to April 2024 period than in the entire previous decade. Compared to China, where more than 30% of people use electric cars, in Russia, electric vehicles represent a just 2% of car sales. Some believe that electric vehicles in Russia will reach more than 25% of vehicle sales by 2035.
Conclusion
Chery, China’s largest car exporter, is assembling vehicles in Russia that are mostly manufactured in China as Chery is betting on strong Russian demand since the Russian domestic market is facing limited production and underutilized capacity. Western automakers abandoned the country due to its invasion of Ukraine, selling their factories to Russian companies. Because Russia is raising fees next year on imported cars, foreign carmakers are encouraged to localize production in Russia. Electric vehicles make up just 2% of Russia’s new car market due to a lack of charging infrastructure and abundant oil resources. China, however, has captured half of Russia’s new car market filling a vacuum created when Western countries left Russia after its invasion of Ukraine.
