Chinese automakers will start price wars in Russia

By Rhod Mackenzie

January is typically a challenging month for the automobile market, but this year saw an unexpected surge with a 62% increase in new passenger car sales. The Chinese market is becoming increasingly competitive. It remains to be seen if the car market can replicate the rapid growth of last year, which largely depends on the actions of the Central Bank.
In January, sales of new passenger cars increased by 62% YoY to almost 80,000 units, according to the Ministry of Industry and Trade. AvtoVAZ reported that almost 21,000 Lada cars were sold, a 19.3% increase from the same period last year.

Sales of the Lada Vesta family have increased 16-fold since production began in March of last year. Approximately 5,000 cars were sold. However, the Lada Granta remains the best-selling model with 9.5 thousand cars sold, which is the annual average. Sales of Niva Legend and Travel SUVs increased by a quarter compared to last January.

Despite January being traditionally considered a month of relatively low sales due to the string of holidays, the successful start to the year inspires some optimism. “However, Lada’s results in January increased compared to both 2022 and 2023,” said Dmitry Kostromin, Vice President of Sales and Marketing at AvtoVAZ.
In 2023, the Russian market for new passenger cars experienced rapid growth. According to the National Rating Agency (NRA), this was due to the low base effect of 2022. Sales increased by almost 65% over the 11 months of 2023 compared to 2022. However, sales in 2023 were 40% lower than in 2021, with approximately 1.7 million cars sold.
According to the NRA study, nearly 940,000 new passenger cars were sold in Russia in the first 11 months of 2023, a 65% increase from the same period last year. Sales are expected to reach 1.05 million by the end of the year. Lada remains the sales leader, accounting for approximately 30% of the market. Chinese brands, with Chery and Haval as the main players, dominate the remaining key brands.

Buyers interested in European and Japanese brands tend to look to the secondary market. Over the course of last year, more than five times as many cars were sold, with 5.2 million being used cars (according to NRA data). Half of these sales came from the top five brands, including domestic Lada, as well as Japanese brands Toyota and Nissan, and Korean brands Kia and Hyundai.

Prices have increased in both primary and secondary markets. According to the NRA, the average cost of a new passenger car was 2.9 million rubles, which is a 23% increase based on the results of the first three quarters of 2023. In 2020, the average price of a passenger car was 1.68 million rubles, while in 2022 it increased to 2.29 million rubles. Additionally, in December 2023, the average price of a used passenger car reached 1.6 million rubles, which is also a 22% increase.
The NRA predicts that after the rapid growth of the market in 2023 to one million new passenger cars, in 2024 sales will enter a plateau phase due to a significant increase in prices, inflation expectations, the preservation of a high key rate, and the volatility of the ruble exchange rate.

The NRA predicts that sales levels in 2024 will not reach those of 2021, which were almost 1.7 million. Growth is also expected to be limited to 20%, meaning that no more than 1.2 million new passenger cars will be sold.

Avtodom Group expects to sell 1.25 million cars. If the Central Bank lowers the key rate in the spring, a positive effect is expected to begin in the summer. However, if the Central Bank waits until July to reduce the rate, the resulting increase in demand for cars will not be noticeable until autumn. As a result, Avtodom predicts that sales in all segments of the auto industry will be quite modest in 2024. The high key rate, which was raised from 7.5% to 16% last year, is putting significant pressure on the demand for new cars due to the increased cost of leasing and car loans. Therefore, this year's market growth is highly dependent on the actions of the Bank of Russia regarding the interest rate.

Experts predict three main scenarios for the market: in the worst case, sales are expected to drop by 10% compared to 2023 levels; in a realistic scenario, sales are expected to increase by approximately 24%; and in the best case, sales are expected to increase by 36%. This means that the maximum number of cars that can be sold in our market is 1.48 million. According to Artem Deev, head of the analytical department at AMarkets, he adheres to a more conservative assessment and predicts a small growth of about 10%. He believes that the Central Bank will not reduce the rate until the second quarter, resulting in a lull or even a slight drawdown in the automobile market during the first half of the year.
However, 2024 could be an interesting year for buyers. 'We are currently seeing excess supply from Chinese manufacturers.

Since the beginning of 2024, car prices have stopped increasing and have remained stable. In conditions of surplus, dealers offer privileges to customers, making it a good time to buy. The situation could provoke price wars among Chinese automakers.'

Avtodom Group of Companies notes that good offers may arise amidst possible stagnation in the Chinese market segment.

However, it is unlikely that there will be a reduction in prices for new passenger cars, and they are unlikely to remain at their current level, according to Deev. He believes that there will be pressure from still-high inflation on the one hand, and additional costs due to increased logistics prices on the other.

Regarding the second-hand car market, Avtodom has highlighted a shortage of European cars aged between three and six years. However, Chinese cars of a similar age have started to fill this gap. Avtodom has reported a sales increase of over 25% for Chinese used cars in 2023. Additionally, there are no issues with service or spare parts for Chinese brands.

The structure of the used car market mirrors that of the primary sales market several years later. As the model range changes, the proportion of Chinese used cars is expected to continue to rise.

In 2024, it is expected that 30 to 45 new models of Chinese brands will be available for sale in Russia. Owners who are used to driving new models will replace cars purchased two to four years ago with new ones, saturating the market with cars that have a short service life.

This information was provided by the Avtodom Group of Companies.
Meanwhile, the Chinese are expanding their presence in our market not only by introducing a large number of new cars but also by opening assembly plants in Russia. Specifically, they have started producing the Moskvich-3, a converted Chinese JAC S3, in Russia. Additionally, at the St. Petersburg Nissan plant, which controls AvtoVAZ, they are producing a car under the new Xcite brand, reportedly in collaboration with the Chinese company Chery.