Sanctions Hurting Leading Russian Automaker AvtoVAZ

ST. PETERSBURG – New U.S. sanctions are being blamed for production and supply chain disruptions at Russia’s flagship automaker AvtoVAZ.

The maker of market-leading Lada cars was able to stabilize manufacturing and logistical operations in the first half of this year. But company President Maxim Sokolov says the new sanctions have led to widespread refusals by foreign suppliers, sub-suppliers and financial institutions from both friendly and unfriendly countries to cooperate with AvtoVAZ.

The automaker had planned to produce 400,000 Ladas this year, but that amount will be reduced at least 10%, Sokolov says.

AvtoVAZ continues to replace Western parts suppliers with suppliers from China, but some local analysts believe this process could be very lengthy and require up to six months to build adequate stockpiles of each component. Parts production within Russia is another option, but that will involve considerable spending.

According to Gazeta.Ru, a Russian business news service, the latest U.S. sanctions have prompted AvtoVAZ to consider abandoning the initially planned production of cars from Chinese state-owned automaker FAW in favor of cars from privately owned Chery. AvtoVAZ also is considering closing down other projects, including the production of Lada X-Cross 5 CUVs (Lada-badged FAW Bestune T77 models) (pictured, below) at the former Nissan plant in St. Petersburg.

Lada X-Cross 5

A ceremony marking the start of production of the Lada X-Cross 5 was held in summer 2023 during the International Economic Forum in St. Petersburg. However, the CUV has not yet been put on the market.

As an alternative to FAW cars, AvtoVAZ may start producing Chery cars such as the Tiggo 7 Pro Max in St. Petersburg. Market sources indicate preparations for such a launch are underway.

AvtoVAZ was having favorable results this year until the new sanctions took effect. The company sold 242,552 units from January through September, up 96% from a year earlier, according to Wards Intelligence data. October sales came to 41,000 units, a 10-year monthly high. November sales, though, fell 8% to about 37,500.

Responding to the latest U.S. sanctions, the Russian government has approved a RR15 billion ($162 million) package of support for the domestic automotive sector. The subsidies are earmarked for local production of components including antilock braking systems and passive-safety technologies. A portion of the funds are also set aside for engineering and design work.

The government also is acting to curtail rising car prices in Russia, which are among the highest in the world. Plans call for the allocation of RR30 billion ($323.5 million) over the next three years for preferential car loans.