After Russia invaded Ukraine, the European Union imposed sanctions, forcing many carmakers to halt production in Russia. One of them was Renault, which even considered restarting production a month later, but backed out. It controlled 30 percent of the entire Russian car market, and now it has been announced that the French manufacturer has sold its share in AvtoVAZ (68%) to the Russian automotive research center NAMI for 1 ruble (1 cent).
It is obvious that Renault has no intention of returning to Russia, and if it were to decide to do so, it would cost them a lot. According to NAMI CEO Maxim Sokolov, the company has invested a lot in AvtoVAZ, so if Renault were to decide to return, it would cost them 112.5 billion rubles ($1.3 billion).
According to Sokolov, Renault invested between $226 and $249 million in AvtoVAZ before withdrawing from Russia, so he believes it would be right for the French to compensate NAMI if they return.
In an interview with TASS, he also said that in 2023, AvtoVAZ NAMI had invested about $311 million. Last year, they invested almost $453 million, and this year they plan to invest another $510 million.
Current relations between Russia and the EU do not indicate that there could be a relaxation soon, so it is difficult to expect that European manufacturers could return to the Russian market in the near future.
The Russian automobile industry has faced significant challenges since the beginning of the war in Ukraine in February 2022. The conflict, coupled with sweeping international sanctions, has disrupted supply chains, forced foreign automakers to exit the market, and led to a sharp decline in production and sales. However, the industry has also shown resilience, with the Russian government and domestic manufacturers attempting to adapt to the new economic reality.
Pre-War Context
Before the war, Russia’s automotive sector was heavily reliant on foreign investment and technology. Major global automakers, such as Volkswagen, Renault, Stellantis, and Hyundai, had established production facilities in the country, often in partnership with local manufacturers like AvtoVAZ (producer of Lada vehicles). In 2021, Russia was one of the largest automotive markets in Europe, with over 1.5 million vehicles sold annually. However, the industry was already facing challenges, including economic stagnation, fluctuating demand, and reliance on imported components.
Immediate Impact of the War and Sanctions
The invasion of Ukraine triggered an unprecedented wave of international sanctions targeting Russia’s economy, including its automotive sector. Key consequences included:
Foreign Automaker Exodus: Almost all major foreign automakers suspended operations in Russia. Companies like Toyota, Ford, and BMW halted production and sales, while others, such as Renault, sold their assets at significant losses. Renault, for example, transferred its majority stake in AvtoVAZ to the Russian government for just one ruble.
Supply Chain Disruptions: Sanctions on critical components, particularly semiconductors and electronics, severely impacted production. Many Russian factories relied on imported parts, and the inability to source these components led to widespread production halts.
Decline in Sales: The Russian automotive market contracted sharply in 2022. New car sales plummeted by 58.8% compared to 2021, reaching levels not seen since the 1990s. The loss of foreign brands, rising prices, and reduced consumer purchasing power contributed to the downturn.
Government and Industry Response
Faced with these challenges, the Russian government and domestic automakers implemented several measures to stabilize the industry:
Localization Efforts: The government prioritized the localization of automotive production to reduce dependence on imports. AvtoVAZ and other domestic manufacturers increased the use of locally sourced components, though this often meant sacrificing quality and technological sophistication.
Parallel Imports: To address the shortage of foreign vehicles and parts, Russia legalized parallel imports, allowing businesses to import goods without the trademark owner’s permission. This enabled the influx of cars and components from countries like China, Kazakhstan, and Belarus.
State Support: The government introduced subsidies and incentives to support domestic production and stimulate demand. For example, preferential loan programs were launched to make cars more affordable for consumers.
Shift to Chinese Brands: With Western automakers gone, Chinese brands quickly filled the void. Companies like Haval, Chery, and Geely expanded their presence in Russia, offering affordable vehicles tailored to the local market. By 2023, Chinese brands accounted for nearly half of all new car sales in Russia.
Current State of the Industry
As of late 2023, the Russian automotive industry is in a state of transition. While the worst of the crisis appears to be over, the sector remains a shadow of its former self. Key trends include:
Dominance of Domestic and Chinese Brands: Lada remains the market leader, but Chinese manufacturers have gained significant market share. These brands are increasingly producing vehicles locally to avoid import tariffs and logistical challenges.
Technological Regression: The loss of access to Western technology has forced Russian automakers to rely on older, less advanced platforms. For example, AvtoVAZ reintroduced the classic Lada Granta model, which uses outdated technology but is more affordable and easier to produce.
Export Opportunities: Some Russian automakers are exploring export markets, particularly in Africa, the Middle East, and Central Asia, to offset declining domestic sales. However, these efforts are hampered by logistical challenges and the industry’s tarnished reputation.
Electric Vehicle Ambitions: Despite the challenges, Russia has expressed interest in developing its electric vehicle (EV) industry. However, progress has been slow due to a lack of infrastructure, technology, and investment.
Long-Term Outlook
The long-term prospects for the Russian automobile industry remain uncertain. While the sector has shown remarkable adaptability, it faces structural challenges that will be difficult to overcome without access to global markets and technology. The industry’s future will likely depend on the evolution of the geopolitical situation, the effectiveness of government policies, and the ability of domestic manufacturers to innovate and compete.
In conclusion, the Russian automobile industry has undergone a dramatic transformation since the beginning of the war in Ukraine. While it has managed to survive the initial shock, its recovery and growth will require significant effort and investment. For now, the sector remains a symbol of Russia’s broader economic struggles and its increasing isolation from the global economy.
In February 2022, Russia launched an invasion of Ukraine, which caused a reaction from the international community and the introduction of sanctions that forced many manufacturers to stop production in Russia. The sanctions were expected to bring the Russian economy to its knees, which happened at first, but recent information suggests that the Russians have found a solution for their automotive industry. The Russian government intends to invest up to $ 900 million in the development of a platform for their new car over the next three years.
Most of the funds come from the Russian parliament, and the project is led by NAMI (automotive institute). NAMI owns the premium brand Aurus Motors, which produces limousines for Russian President Vladimir Putin.
“By designing such a modular platform, we are laying the foundation for the development of our automobile production. It will be used for cars of various classes, from compact to business. NAMI will play a leading role in this project, and the main task is to unify the component base for this platform. The new platform will also be used for the serial production of hybrid and especially electric vehicles in the future,” said Alexey Matushansky, Director of the Department for Strategic Development and Corporate Policy at the Ministry of Industry and Trade.
The batteries for the car will be produced by Rosatom (the Russian state atomic energy company), and the construction of two battery production plants is underway.
The Russians have previously tried to restore the production of European-brand cars, but illegally. In early 2024, information appeared that the Chinese manufacturer Dongfeng Motor Group, Stellantis’ partner in China, supplied parts to the Russian company Automotive Technologies, which began assembling the Citroen C5 Aircross. This was not the first time that Chinese companies violated agreements with other manufacturers, and this time the reason could be the agreement that Stellantis reached with another Chinese company (Leapmotor).
Customs records did not show that Stellantis knew about the imports, but evidence obtained by other companies shows a lack of control over their brands in Russia after leaving the country.
