Russian automotive industry's recovery hindered by Western sanctions, turns to China for revival

On February 24, 2022, when Russia attacked Ukraine, this incited a mass exodus of Western companies—a month on, the largest car factory in Russia, allied with the Renault firm AvtoVAZ, halted due to a shortage of components. The hardships, which were supposedly temporary, lingered until early June. Whatever was produced from then, however, could not match the quality of the cars previously crafted there.

Due to the scarcity of components, producing new Lada models, the end-product of the AvtoVAZ and Renault alliance, became impossible. Older models, such as the Granta, came back in vastly simplified versions. The Russian industry could only deliver antiquated engines that adhered to the Euro 2 emission standards. As a result, the prior law mandating new cars to meet Euro 5 standards was altered. The alterations also permitted the sale of new vehicles without ABS systems, ESP, or pyrotechnic seatbelt tensioners.

Contrary to the narrative promoted by Russian propaganda, the domestic industry struggled to meet modern automotive demands. Nonetheless, over time, this began to evolve. From December 1, 2023, it became obligatory for new cars produced in Russia to be equipped with an ABS to prevent wheels from locking during braking. This has been mandatory in Europe since 2006.

Looking ahead, autostat.ru reports that from February 1, 2024, environmental requirements in Russia will tighten, with new cars needing to meet a standard equivalent to Euro 3, a standard introduced in Europe in 2001. And that's not all. From January 1, 2025, Russian law will require new cars to install the ESP system, which has been mandatory in Europe since 2014.

With these developments, a question emerges: how is the Russian automotive industry tackling these challenges? Are local firms managing to create the necessary systems to produce modern cars in sufficient quantities? The existing evidence, however, points elsewhere.

First, many systems made for Russian cars are only Russian in name. The revived Moskovitch vehicles are models made by Chinese firm JAC but with a changed emblem. The Russian firm Motorinvest recently started selling a luxury electric SUV named M-Hero, which is a Chinese Mengshi 917 manufactured by Dongfeng Motor.

In the first half of 2024, the Moskovitch 5 will launch in the Russian market. This crossover will be a clone of the Chinese Sehola X6. Later in 2024, a larger SUV - the Moskovitch 8 - is expected to become part of the line-up. This will essentially be the Chinese Sehol X8 Plus tagged with a Russian brand's logo. Soon, Lada plans to introduce a new mid-size crossover, the Chinese Bestune T77 SUV.

Chinese firms are not hanging back either. As autostat.ru reports, the share of Chinese brands in the Russian car market went from 33.3% in January 2023 to 60.4% in January 2024. Concurrently, the number of dealerships for Chinese brands surged from 1053 to 2207.

As reported by Russian media, current Lada models have been fitted with ABS and ESP systems from the Russian firm Itelma. Talks are underway about implementing these systems in vehicles from GAZ and UAZ companies. A similar situation is unfolding with engine upgrades to meet stricter emission standards. Here again, there are Chinese fingerprints all over, with the Itelma firm initiating a partnership with the Chinese Aoxing Group in June 2017 to develop engine control systems. Due to its inclusion in the American sanction list in October 2023, this won't be a simple task for the Russian firm.

The Russian economy became more susceptible to the withdrawal of Western partners than the Kremlin would like to admit. Recovery is taking longer than Moscow expected, with the cost being dependence on foreign automotive corporations - this time from China.