Chinese car sales in Russia appeared to have peaked as local production recovered after the exodus of western automakers, data seen by the Reuters news agency reportedly showed.

Recent growth in the market might stall as high import costs and interest rates began to bite, Reuters added.

The data was seen as early indicators Russia’s car market, and China’s role in it, had stabilised after almost two years of upheaval caused by sanctions placed on the country and western companies’ sudden exit after the Ukraine invasion.

But sales, which Reuters said fell almost 60% in 2022 as production sank to a post-Soviet era low, were still a long way from the pre-invasion level. Sales and output in 2023 were set to be among the lowest in the last 10 years, the report added.

Before the February 2022 invasion, Chinese cars accounted for less than 10% of Russian sales. Last August, Chinese brands’ market share peaked at almost 56%, Reuters said, citing data from Autostat and PPK.

That percentage had since levelled off, according to the report, with Chinese brands selling around 60,000 units each month since August for a 53% share in September.

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By GlobalData

Chinese carmakers such as Haval, Chery and Geely were capitalising on the departure of western automakers which used to dominate the market before the Ukraine invasion, showing the Russian government’s increasing dependence on the Beijing administration and growing economic ties with China as the west shunned Russia over the war, Reuters noted.

Reuters said Russia had risen from 11th to become China’s largest car export market with shipments worth US$9.4bn in January-October, according to Chinese customs data cited by the news agency. In the same period of last year, China’s Russia exports were worth just $1.1bn.

The Autostat data cited by Reuters showed monthly Russian car sales were now more than double the tallies a year ago while separate data the news agency obtained from the Russian federal statistics service Rosstat showed car production nearly tripled year on year in September, underlining the market’s partial recovery.

Chinese carmakers were crucial in that process but, with demand now mostly satisfied, there was a ceiling for their further expansion, Autostat executive director Sergei Udalov told Reuters.

“The market has reached a state of equilibrium – the main Chinese brands have come to Russia and (pent-up) demand is satisfied,” Udalov told the news agency.

Russia’s top carmaker Avtovaz, which produces the most popular Lada cars, was catering to demand for cheap cars while Chinese brands were filling the gap left by western producers for more expensive vehicles, Udalov reportedly added.

That trend could change should either Avtovaz or Chinese carmakers seek to dip their toes into different pricing categories, Udalov told Reuters, but for now, despite depressed sales and production, the market’s prospects for growth were slim.

The news agency noted sanctions against Russia had contributed to lower car production and sales, most notably in 2022, but also after Moscow annexed the Crimean peninsula from Ukraine in 2014.

Sales had not topped 2m vehicles since 2014 and production had been lower, Reuters added. Just over 626,000 new cars were sold in Russia in 2022 and almost 830,000 were sold in January-October this year.

A modest recovery was under way from 2022’s lows, but the loss of western technology and expertise was hurting the sector, analysts told Reuters, even as Chinese carmakers settled in at some of the factories vacated by their western counterparts.

In the first three quarters of 2023, Russia produced only a few thousand more cars than in the same period of last year, the Rosstat data reportedly showed, but output was now trending upwards.

“The growth of pent-up demand that started in late spring and lasted through August started to run out of steam in September,” economist Natalia Zubarevich, a professor at Moscow State University, told Reuters.

Wages had been rising, partly due to above target inflation, but four interest rate rises since July to 15% meant, although people had more money, credit was far more expensive.

“The (key) rate should have a depressing effect (on car loans), and this should reveal itself in October and November,” Zubarevich told the news agency.

On top of that, the Russian rouble’s slide to 100 against the US dollar this year had made imports more expensive, depressing purchases of Chinese cars. It had since recovered to around 90, Reuters said.

The central bank had this month said a ban on imports of some Japanese cars, combined with rouble weakening, was pushing up prices of foreign cars.

Avtovaz last week lowered its 2023 production forecast of 400,000 Lada cars by up to 10% in response to US sanctions on Russian industry in September, which specifically targeted Avtovaz, Reuters added.

“The market is in a highly unstable, shaky state,” Zubarevich told the news agency.