Sales "plummet", are Russian consumers bored with Chinese cars?

The Chinese car “fever” appears to have peaked, as Russia’s domestic activity gradually recovers amid rising import costs and falling interest rates.

'Cơn sốt' ô tô Trung Quốc chững lại, người Nga đã chán xe. (Nguồn: lada.ru)

Russia's leading automaker Avtovaz, the maker of the most popular Lada-branded cars, has resumed production to meet demand for low-cost cars. (Source: lada.ru)

Sales of Chinese cars in Russia have exploded, after a series of Western carmakers decided to leave the country from the beginning of 2022.

However, this “fever” appears to have peaked, as Russia’s domestic activity gradually recovers, amid rising import costs and falling interest rates.

Before February 2022, when the Russia-Ukraine conflict began, Chinese car sales accounted for less than 10% of total sales in the Russian market. But by August 2023, official statistics from the auto industry statistics organization Autostat and the consulting firm PPK showed that the market share of Chinese car brands in Russia had increased to 56%.

But since then, the rate has leveled off. In September 2023, about 60,000 Chinese-branded cars were sold to Russian customers, corresponding to a 53% market share. Notably, these sales included both imported and Russian-made cars.

Autostat CEO Sergei Udalov said that Chinese automakers have played an important role in the Russian market for more than a year.

China customs data shows that from January to October 2023, Russia jumped from 11th place to become China's largest auto export market, reaching a value of $9.4 billion. This figure is much higher than the same period last year, when auto exports from China to Russia reached only $1.1 billion.

However, demand has now been largely met. “The market has reached equilibrium – the main Chinese brands have come to Russia and the (pent-up) demand has been met,” said Mr. Udalov.

“The growth of pent-up demand that began in late spring 2023 and lasted until August 2023 began to dry up in September 2023,” said economist Natalia Zubarevich, professor at Moscow State University.

Professor Zubarevich explained that the continuous increase in inflation in recent months, combined with high interest rates, has made the cost of car loans more expensive for consumers. Interest rates have now started to decrease, but the continuous depreciation of the ruble this year has made imports more expensive, reducing the purchasing power of Chinese cars.

The Russian Central Bank said the ban on imports of some Japanese cars, effective from November 2023, combined with the weakening ruble, increased the price of imported cars.

Over the past few years, geopolitical turmoil and Western sanctions against Russia have weakened the largest economy in northern Eurasia, causing a decline in car production and sales. In 2022, just over 626,000 new cars were sold in Russia, and nearly 830,000 more were sold between January and October this year.

A modest recovery is underway from the 2022 lows, but the loss of Western technology and expertise is hurting Russia's auto industry, even as Chinese automakers have replaced Western counterparts in ramping up operations in the country, analysts say.

Data from the Russian statistics agency Rosstat shows that in the first three quarters of 2023, the country produced only a few thousand more cars than in the same period last year, but the figures are now trending upward.

Russia’s top carmaker Avtovaz, maker of the popular Lada brand, has resumed production to meet demand for low-cost cars, while Chinese brands are filling the void left by Western manufacturers for more expensive cars, Udalov said.

However, according to the head of Autostat, the market outlook remains very bleak. Both sales and production volumes are down. Last week, Avtovaz lowered its forecast for Lada sales in 2023 by 10% compared to the previous forecast, to 400,000 units.

“The market is in a very volatile and unstable state,” Professor Zubarevich stressed.

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