Carmaker Chery wants VW plant
This is how the Chinese benefit from the exodus from Russia
By Diana Dittmer
08/25/2023, 7:07 p.m
Chinese automakers are the big winners in Russia. Where Western manufacturers withdraw and leave works behind, they strike. The Chinese competition could also soon move into the former VW plant in Kaluga.
There have been rumors for months about a possible entry of the Chinese carmaker Chery into the Russian market, now it is apparently becoming concrete. As the “Handelsblatt” reported, citing insiders, the new owner of the former VW plant in Kaluga, the Russian dealership Avilon and the Chinese carmaker Chery are negotiating a cooperation. Chery could therefore take over the plant southwest of Moscow, which has been abandoned since March 2022, as part of a joint venture.
The Volkswagen group management gave up the plant after the outbreak of the Ukraine war and completed the sale in May of this year. It was agreed not to disclose the price, as Volkswagen announced at the request of ntv.de. The around 125 million euros mentioned in the Russian media are not correct, it was said. According to the Annual Report 2022 led to the sale of all shares in Volkswagen Group Rus LLC and its local subsidiaries to depreciation of two billion euros.
Avilon, which is backed by Russian finance company Art Finance, has since been looking for a partner to restart manufacturing. After the takeover, Chery wants to produce limousines under the new Omeda S5 brand, as the “Berliner Zeitung” reported, citing a Russian car portal. Volkswagen built the Polo, Tiguan and Skoda Rapid compact cars in the plant from 2007 to March 2022. According to the company, around 118,000 vehicles rolled off the assembly line here in the pre-war year 2021.
The deal comes at the right time for the Chinese. Although Chery is the best-selling international car brand in Russia, the business has recently suffered from significantly increased import duties. Russia enacted it in August to allow domestic industry to manufacture its own products – but the domestic auto industry can’t work miracles. Customs duties make foreign vehicles significantly more expensive for Russian buyers. Chery did not previously have its own factory in Russia. With the former VW factory, the Chinese carmaker would therefore have an advantage. The company is said to be in talks at the same time with other car factory owners who have sold or left western manufacturers because of the Ukraine war. BMW, Mercedes, Renault and Hyundai also stopped production in Russia after the outbreak of war and left the country.
According to experts, a clear trend can be seen: Chinese companies are systematically penetrating the gaps that have arisen in the Russian market as a result of the exodus of car manufacturers. Current data from the Chinese manufacturers’ association CAAM (China Association of Automobiles) show how much Chinese car manufacturers have grown in Russia this year. Russia has become the largest buyer of Chinese cars. The Russian cake is now shared by a few domestic ones (Avto/Lada and GAZGroup) with a large number of Chinese car manufacturers. “The Russian market was very fragmented,” says China expert Gregor Sebastian from the Merics Institute in Berlin (Mercator Institute for China Studies) ntv.de. “Now it will be divided between China and Russia.”
The winners have been determined: According to data from the information service Marklines, Chery alone recorded an increase of almost 300 percent in new registrations in Russia from January to July 2023 compared to the same period last year, Great Wall Motor, also one of the larger, up-and-coming automakers in the People’s Republic, improved of a similar magnitude. Sales of VW, Mercedes, Toyota, BMW and Toyota, on the other hand, fell to zero.
Chery is also preparing for the start in Germany
The invasion of Russia by Chinese automakers raises the question of what the trend means for the race for dominance in the global auto market. Chery has so far focused on emerging countries and mainly produces petrol engines, the carmaker is rather insignificant when it comes to electric models. Nevertheless, Merics expert Sebastian expects that with the growth on the Russian market – and possibly later also in neighboring countries, the coffers will ring. This could also be used to advance the development of new e-models, says Sebastian in an interview with ntv.de. “The Russian manufacturer Lada cannot take over all the factories. For Chery or Wall Motors, this offers a huge opportunity to generate more profits on the Russian market and thus catch up in the car market.”
In fact, Chery is no longer unknown in this country either. The carmaker has been running a design and development center in Raunheim near Frankfurt for several years. The market entry of several models is planned from the end of 2024. Then three cars are to come onto the market in Germany.
“It has been clear since the beginning of the Ukraine war that the Chinese are using the gap in Russia. The sparrows have been whistling from the rooftops,” says auto expert Ferdinand Dudenhöffer from the CAR Center Automotive Research ntv.de. However, he believes it is difficult whether Chery will succeed in actually investing in higher-quality models with the coup and possibly expanding further into Western Europe. “Chery fits in with the simple cars in Russia. There is a very big risk that Chery has a plant in Russia but is unlikely to come to the EU with its Russian cars. Kaluga looks like a bargain at first glance , but cars that can only be sold in Russia or Belarus are only half the battle.”
“Theft of western assets goes unpunished”
The Russian economist Vladislav Inozemtsev observes the developments more critically. Europe is not just “one of the greatest expansion opportunities” for Chery and Russia’s vicarious agents. The sanctions against Russia would also be undermined if third countries like China overturned them and secured the supply of cars to the population.
From January to the end of July half a million vehicles were sold on the Russian market sold. Although this has not quite reached the level before the start of the war and the pandemic, it is a significant recovery compared to the previous year. “Russian car production was actually non-existent. That’s why the Russians encouraged the Chinese to step in,” criticized the economist in an interview with ntv.de. And the Europeans are doing nothing “to retaliate”. The actual idea of the sanctions is to deprive the country of cars or other important parts, to cut them off from supplies. He calls the fact that the Chinese are now buying up western assets despite Russia’s sanctions a “huge dam breach.” “Previously, no one has shown any interest in the assets.” Inozemtsev assumes that this will now change.
The fact that Russia collected assets from Western companies very cheaply, or “stole” them for a symbolic price, as Inozemtsev calls it, is also unacceptable to him. According to Interfax, VW sold Kaluga for the equivalent of 125 million euros. “Volkswagen has invested 850 million euros in a modern plant in Kaluga. And the Russians offered a purchase price of 125 million dollars, that’s a discount of 80 percent.” Renault fared worse. The French automaker had to buy its majority stake in the plant it built in Moscow for a symbolic dollar surrender to the Moscow city government. Vehicles of the old Russian brand “Moskvich” are now leaving the factory. Chinese manufacturers are responsible for the design and engine. “What is happening in Russia today can certainly be called the largest robbery of foreign investors in all known history,” Inozemtsev wrote in an essay back in March.
“It went badly,” says Sebastian. “Because the Western corporations no longer have the profits from Russia, but the Chinese manufacturers. Actually, you’ve dug a hole with it.” But that’s always the problem with sanctions, he adds. All in all, for the China expert, the withdrawal of German manufacturers from Russia is “a loss, but not a broken neck.” As the VW group let know when asked by ntv.de, there are no plans to return to Russia – not even to a Russia after or without Kremlin boss Putin.