U.S. Expands Sanctions on Russian Automotive Sector

ST. PETERSBURG – Russian auto industry analysts are downplaying the effects of newly imposed U.S. sanctions, saying automakers have restructured their supply chains or are developing closer ties with China.

The sanctions announced in mid-September include AvtoVAZ, the state-owned manufacturer of Lada cars, the perennially best-selling brand in Russia; and Sollers, whose Moskvich car is based on China’s JAC brand. Among automakers, only Kaliningrad-based Avtovor is not on the U.S. Department of Treasury’s SDN (Specially Designated Nationals) list of companies whose assets are blocked.

AvtoVAZ refused to comment on the impact of sanctions on business, while Sollers representatives said they do not expect any consequences. A company spokesman told the Russian Kommersant business paper that its business has been completely restructured to sanctions-resistant supply channels and payment mechanisms and is strategically focused on technological independence from external partners.

Over the past year, Sollers has been focused on restarting the factories left after former partners Mazda, Ford and Isuzu exited the Russian Federation, assembling models under its own brand created on the basis of Chinese licenses.

AvtoVAZ also will assemble models based on Chinese automaker FAW under its own brand at a former Nissan plant. The Russian company is looking for other partners while integrating components from China into its supply chains.

It is expected AvtoVAZ will be most affected by U.S. sanctions against Russia. Prior to Russia’s invasion of Ukraine in February 2022, the automaker was actively integrated into the supply chains of its former shareholder Renault. As the European Union began restricting supplies of components, AvtoVAZ temporarily stopped production.

As Russia’s largest automaker, AvtoVAZ needs a large volume of components. The company has not disclosed its suppliers since the beginning of hostilities, but some of them are subsidiaries of global manufacturers.

In addition to Russian automakers, some leading domestic suppliers also are included in the latest U.S. sanctions. One of them is Itelma, which develops electronic stability programs and antilock-braking systems for AvtoVAZ models. The general director of Itelma, Alexey Vorobyov, expressed surprise that “such a purely civil enterprise was included in the sanctions list.”

In addition to automobile companies, the manufacturer of Tonar semi-trailers and tractors (pictured, below), as well as CTZ Uraltrak, were also sanctioned. The latter is one of Russia’s largest producers of diesel engines.

Tonar tractor

Russian analysts, however, believe these latest U.S. sanctions will not have a catastrophic effect on the domestic automotive sector, which has generally adapted to current realities and ongoing sanctions pressure. This is due in part to its active cooperation with Chinese suppliers.

According to analysts, some of the restrictions will lead “to indirect cooperation,” including on export projects. Such a project was recently announced by AvtoVAZ, which plans to produce cars in Egypt and make that country a hub for exports to the entire African continent.

AvtoVAZ and other Russian automakers consider the African market one of the most promising for their growth. According to online data platform Statista, the entire African market amounted to 790,100 cars in 2022. The largest market in the region was South Africa, where 363,000 passenger vehicles were sold, according to local auto manufacturers association NAAMSA.