The share of French Renault in AVTOVAZ may be sold, according to unofficial information, to a Chinese automaker. Twenty years ago, it was impossible to even imagine such a thing. Then the Russian authorities gave the green light to Western concerns, leaving the Chinese car industry out of the Russian market. However, now the situation has changed dramatically.
Renault continues negotiations on further participation in the capital of AvtoVAZ, said the financial director of the French automaker Thierry Pieton. At the same time, he refused to disclose details of negotiations with the "Russian authorities", saying only that the French side had managed to "make progress".
According to sources of "Gazeta.Ru", the structures of the Ministry of Industry and Trade or Rostec Corporation are called as possible new owners of the plant. According to a source of the TASS news agency, Renault's share may be bought by one of the Chinese automakers. "One of the Chinese automakers is being considered," a government source said.
Until the end of 2021, the owner of 100% of AvtoVAZ was the Dutch Alliance Rostec Auto B.V., where Rostec State Corporation owned 32%, and Renault Group owned 68%. At the end of 2021, the transfer of 100% of AVTOVAZ shares to the Russian jurisdiction, under the aegis of a new joint company – Lada Auto Holding, was completed. The shares of Rostec and Renault Group remained the same.
"The Chinese may be interested in the Russian market, because it is quite large and now it opens up more opportunities due to the withdrawal of European companies from the market," says the executive director of the analytical agency Autostat Sergey Udalov.
Chinese brands were able to double sales of new cars last year. According to Autostat, they sold 115,700 new cars in Russia, which is 102% more than in 2020. This is a record figure for the entire time of the presence of Chinese brands in the Russian market. And the share has grown to 7.5% in 2021, and this year to 10%, Udalov notes.
"The Chinese are expanding the model range for Russia, the reputation of Chinese brands is growing, as is the interest in them from buyers," Udalov says.
However, Chinese automakers had a hard time entering the Russian market. When 15-20 years ago the active foreign expansion of automobile concerns into Russia began, the government of the Russian Federation preferred the more famous and already established Western brands – European, American, Japanese and Korean.
The Russian authorities did not really want to see the Chinese car industry in Russia. The Chinese did not particularly want to localize their production on our territory. The automotive industry from China was just beginning its formation, in terms of quality and service, it lagged far behind famous Western competitors. At first, the models of Chinese brands looked very much like copies of Western analogues. However, the Chinese auto industry has transformed quite quickly. But by that time, all the tidbits of the Russian market had already been acquired by Western rivals, who built their own car factories in Russia with the support of the Ministry of Industry and Trade, and even some automotive components began to be produced on our territory.
However, since then, not only has the Chinese auto industry grown a lot, but the geopolitical situation has changed dramatically. The withdrawal of Western car brands from Russia, which they, at least, announced due to pressure from parent companies in Europe and the United States, opens up a huge potential for the Chinese automotive industry to conquer the Russian automotive market.
The total share of Chinese in Russia, of course, has grown, but we are talking about ten Chinese brands. Moreover, only three Chinese brands have achieved some relatively significant presence on the Russian market, which accounted for 87% of sales of the total number of Chinese cars sold. These are Haval (first place), Chery (second) and Geely (third), which last year sold 25-40 thousand cars a year. But many Chinese companies have to settle for much more modest sales. Changan, EXEED and FAW sold 3-6 thousand pieces per year. Chinese brands GAC, Lifan, DFM – less than a thousand, but more than 500 cars per year. And Brilliance sold only 110 cars last year, Zotye – only 51, Foton – 37. Definitely, many of them have a lot to grow.
Who exactly from the Chinese could be interested in the share of AVTOVAZ? There are actually a lot of options. This may also be a completely unknown car brand on the Russian market, which is doing well in the Chinese market and is making plans to expand sales markets abroad. Or, on the contrary, a Chinese manufacturer who is not very comfortable in the domestic Chinese market, so he wants to succeed in the Russian one.
"There are more than 100 car brands in China itself. At the same time, China's own car market is large and not yet saturated. And the internal requirements in China for the automotive industry, in particular, for the designs of cars, are being tightened",
– says Sergey Udalov.
It is logical to assume that someone present in Russia is showing interest. "But Haval already has production in Russia. Geely has production facilities in Belarus, and the company did not plan to have an assembly plant in Russia. In addition, Geely has European shareholders who support sanctions, so it will be difficult for this company to become a shareholder of AvtoVAZ purely politically. Perhaps this offer may be of interest to the second player among the Chinese in the Russian market – the company Chery. The Chinese company Changan also has unrealized opportunities in Russia: it has a very large and interesting model range. Potentially, Lifan may also be interested in AVTOVAZ," says Sergey Udalov.
Whoever becomes the new owner of AVTOVAZ, it is unlikely that the Chinese should expect the same approach to the development of the Togliatti plant that Renault had. The French shared their own platform with AVTOVAZ, on the basis of which new models were created under the preserved local Lada brand. That is, they treated the Russian automotive heritage very carefully, which was probably a necessary condition at one time for the sale of a controlling stake in AVTOVAZ to this particular Western concern. Renault integrated AvtoVAZ into the global automotive industry, new models were created from foreign components and spare parts. Now it's all gone sideways because of Western sanctions.
The Chinese consider AvtoVAZ, rather, as an assembly site for cars under their own brand.
Sergey Udalov believes that the new owner of AvtoVAZ cannot completely abandon the Lada brand, which occupies 20% of the market. AvtoVAZ has its own platforms with which it is possible to produce budget cars, from the sale of which the new owner will receive good dividends. We are talking about cars Niva Legend and Niva Travel (formerly Chevrolet), Lada Granta and Lada Vesta. Difficulties may arise with the latter, since quite a lot of foreign components have already been used when creating Vesta.
"Secondly, the Chinese are likely to want to build their own cars, expand the range of models and increase their share in the Russian market",
– Udalov says.
Previously, the Russian government would hardly have agreed to such a thing. "I think that in the current situation, the government is ready to do a lot to save jobs, so that the automotive industry and component suppliers continue to work, so that the range of cars remains on the market, and prices for cars are affordable," Udalov believes.
In addition, the expert adds, the deal with China gives the Russian automotive industry access to the Chinese market of components and materials, which, under the conditions of sanctions, is extremely important for the preservation of the Russian automotive industry in general. "If Rostec buys a share in AVTOVAZ, then we will have to look for components for purchase. And when selling a share to the Chinese, the story with the components would have a different meaning. We could already be talking about the production of automotive components in the country," says the expert of Autostat.
Not all experts see the point of selling AVTOVAZ's share to Rostec. "Because of this, the production of cars at the enterprise will not resume. Rostec itself is under Western sanctions, and for the production of cars, we need capacities for the production of components, primarily electronic ones. And all of them are localized in the USA, Europe or China. Therefore, the arrival of a Chinese concern at the plant is the most optimal option both for the enterprise itself and for Russians. Chinese manufacturers have a modern base to produce cars with electronic components, which AvtoVAZ lost due to Western sanctions," said Artem Deev, head of the analytical department of AMarkets. For the Chinese themselves, this is a way to reduce costs and produce cars on the Russian market at relatively lower prices than when they are supplied from China.
However, Sergey Udalov is inclined to believe that this story is no longer about the sale of AVTOVAZ's share to the Chinese, but about a multi-layered deal with Renault.
"As an option, we can talk about the transfer of Renault's share to Rostec management with the preferential right of the French to buy this share back.
I believe that Renault, from a business point of view, would not want to leave the country. But if he has to leave, he would like to be able to return to Russia when the situation is resolved. Moreover, the Russian automobile market after its freezing will become even more promising than it was. But it is unlikely to be a public story," says Sergey Udalov. And the problem of auto components will be solved, among other things, by allowing parallel imports. The necessary Western parts can be obtained through third countries, including China, bypassing official suppliers.
Olga Samofalova