Sanctions May Hamper Chinese Automakers in Russia

Chinese automakers are aggressively expanding in Russia by launching their own models and establishing joint production with local manufacturers. But Western economic sanctions imposed on Russia after its February 2022 invasion of Ukraine have been tightened to include its foreign automaking partners.

The sanctions ban or severely limit exports of Russian-made vehicles to European Union and G7 countries including the U.S., Canada and the U.K. in addition to Australia. Vehicle imports into Russia from those countries are restricted as well.

While the original sanctions were applied directly to Russian automakers, the West is now acting to prevent any bypassing of the trade restrictions by other countries – particularly China, whose share of the Russian automotive market has grown significantly in the second half of this year. Chinese automakers are targeting an 80% share of the Russian market in 2024.

The latest sanctions were imposed by the U.S. on Russian automaker Motorinvest, which produces Evolute electric vehicles based on models from Chinese automaker Dongfeng. In the spring of 2022, Motorinvest signed a RR13 billion ($150 million) contract with the Russian Ministry of Industry and Trade to produce up to 100,000 cars annually. Production of the Evolute i-Sky CUV (pictured, below), based on the Dongfeng Forthing Thunder, started there in mid-November.

Evolute i-SKY

Motorinvest had plans to launch production of a D-segment hybrid CUV in the future, but the latest sanctions have made it unclear whether that project will be implemented.

Some Russian analysts believe the imposition of sanctions on Chinese automakers’ Russian partners, such as Motorinvest, could lead to the termination of some large-scale projects mainly involving the assembly of Chinese cars by Russian companies within Russia. Direct supplies of Chinese cars to Russia are not subject to sanctions.

Russian media reports indicate Chinese automakers are among the bidders for assembly plants abandoned by global automakers in the wake of Russia’s invasion of Ukraine.

An example of this is the former Hyundai plant in St. Petersburg (pictured, below) – one of Russia’s largest in terms of output (up to 200,000 units annually) – which was sold Dec. 19 for RR10,000 ($110) to Art-Finance, a subsidiary of the Russian car retailer Avilon Group. According to South Korea’s Chosun Ilbo business paper, the true market value of the plant exceeds RR20 billion ($221 million). Some analysts predict the plant will be transferred to a Chinese automaker ahead of large-scale production.

Earlier, Art-Finance acquired Volkswagen’s 225,000-unit-capacity plant in Kaluga.

According to Wards Intelligence data, Chinese brands will account for about 50% of the nearly 1 million light-vehicle sales in Russia in 2023. The sales leader from January through November was domestic brand AvtoVaz, but the next three biggest sellers were Chinese: Chery, Great Wall and Geely, Wards data show.

Hyundai St. Petersburg (2)