Europe’s largest manufacturer is, as you might expect, also a rising force in Russia. It builds Audi, Škoda and Volkswagen models at its own 4,000,000m² plant in Kaluga, and in addition has a joint venture with GAZ Group. Last year, some 163,200 vehicles were made at Kaluga, mainly the Volkswagen Tiguan and Polo models, plus the Škoda Fabia and Octavia. According to VW, the plant has 5,800 employees.

Volkswagen Group Rus, to give it its official name, is located in the Grabtsevo tech park, Kaluga, 170km to the southwest of Moscow. Though it started in 2007 as an SKD operation, now only the Volkswagen Touareg and Volkswagen Multivan are assembled from kits. The plant has a body shop, a paint shop and an assembly unit, as well as its own railway sidings, which have also featured a customs office since 2009.

From 2015, the Group will supply both its vehicle assembly plant at Kaluga and contract production at the GAZ plant in Nizhny Novgorod with locally made fourcylinder petrol engines. The powertrain plant is presently under construction close to the site of the Kaluga vehicle factory. Initial annual engine capacity will be 150,000 units, with the first engine to be Volkswagen’s latest EA 211 series as featured in the Golf and other models.

Engine production at Kaluga will comprise cylinder blocks, cylinder heads with integrated assembly, crankshafts and the assembly of complete engines. The Group also plans to build a logistics centre near Moscow.

Once Volkswagen’s engine facility is up and running, the company will be on schedule for its goal of having 30% of the vehicles produced in Russia equipped with locally manufactured engines by 2016. By doing so, the Group will have met targets set in the additional agreement to Decree 166 signed with the Russian government in May 2011.

While the maximum annual capacity at the Kaluga plant is currently 225,000 vehicles, annual capacity contracted to GAZ Group at Nizhny Novgorod is close to 110,000 vehicles. In 2012, the Volkswagen Group delivered more than 315,000 vehicles to Russian customers, a 39% year-on-year rise, with more than half of these produced locally. VW intends to sell 500,000 vehicles per year in Russia by 2018.

Nissan: major expansion planned

Nissan is targeting a 10% share of the Russian market by 2016 (up from around 6% today) which, if achieved, will give the company annual sales of over 450,000 units per annum. Much of the added volume will come from the addition of Nissan and Datsun models on a dedicated line within the AvtoVAZ Togliatti works (see p32) but Nissan’s own St Petersburg plant will also play its part in the company’s ambitious target.

The capacity of St Petersburg will be doubled to 100,000 units per annum by fiscal 2014. The plant currently makes the Teana sedan, X-Trail SUV and Murano crossover. Last year’s production total was 43,000 vehicles.

Nissan is investing €167 million to add 50,000m2 of new production facilities, including press and plastics shops. The expansion will enable St Petersburg to produce up to five different models simultaneously, including the next generation Qashqai, which will be built for the local market commencing in 2014.

Hyundai & Kia

The first model to be built at Hyundai Motor Manufacturing Rus’s (HMMR) St Petersburg plant was the Solaris, a small sedan and hatchback series that is a localised version of the Hyundai Verna/Accent, modified to cope with Russia’s harsh roads and extreme cold. A second model was added in August 2011, the Kia Rio sedan. This uses the same platform as the Solaris and its localised production has greatly aided the growth of the Kia brand in Russia.

HMMR’s export programme sees the Solaris being shipped to the neighbouring markets of Ukraine, Azerbaijan, Kazakhstan, Belarus, Uzbekistan, Moldova, Armenia and Kyrgyzstan. No import duties are imposed on the CIS nations importing Accents produced in Russia.

PSA & Mitsubishi

PCMA Rus, an assembly plant owned by both PSA Peugeot Citroën (70%) and Mitsubishi Motors Corporation (30%), continues to add more vehicles, the new generation of the Mitsubishi Outlander as well as the Peugeot 408 being the latest models. The site in Kaluga, which started out as an SKD operation, moved to full manufacturing last year.

Since its opening in 2010, the plant has assembled a combined 100,000+ units of five models (Peugeot 308 and 4007, Citroën C4 and C-Crosser, and previous generation Mitsubishi Outlander), in addition to the two newest ones. The move to full production means the plant’s capacity has been lifted to 125,000 vehicles per year. With the end of C-Crosser assembly, some 85,000 Peugeot and Citroën C-segment cars will from now on be built at Kaluga, as well as 40,000 Mitsubishi SUVs.

One important new development that has come with the change to manufacturing is the addition of Russian-made components, including stamped parts, bumpers, wheels and tyres, seats, dashboards, etc. Due to the launch of full-scale production and three new workshops (welding, painting, assembly) the number of plant employees is rising from 1,700 in 2011 to almost 2,500 by the end of 2013.

Local suppliers: the struggle to compete

Tier 1, 2 and 3 component suppliers continue to localise their former imported parts operations, with firms such as Valeo and Visteon among the leading groups. Major investments by Russian firms have, by contrast, been few and far between. There are several reasons for this, though the main one is a simple lack of connection to global OEMs’ supplier chains.

Local firms are seemingly caught by the fact that to become a supplier to Volkswagen Group, Renault-Nissan or PSA Peugeot Citroën, a long and expensive process of certification needs to take place. The problem for many Russian vendors is that they lack a strong track record of delivering high quality components in large volumes to existing foreign customers. To gain even a handful of such contracts takes years and requires very deep pockets.

Foreign suppliers: ever more investment

Plastic Omnium is one of a number of major overseas suppliers investing in Russia. The firm’s Auto Inergy division has erected a new facility in St Petersburg to service new contracts from Nissan, Ford and General Motors. The plant has been built by the 51%-owned joint venture created in April 2012 with fuel systems manufacturer DSK.

The Group’s third manufacturing facility in Russia joins a plant in Stavrovo, which produces fuel systems primarily for Renault, and a facility in Togliatti that mainly supplies AvtoVAZ. By 2015, the division expects to be manufacturing more than a million fuel tanks locally, giving it a projected 40% of the market.

Continental’s Powertrain division is also in an expansionary mood, having recently announced a €20 million investment for its Kaluga plant, expanding capacity to produce engine control and fuel supply units. One of the drivers for this is the future enforcement of more stringent emissions standards in Russia and these will significantly increase the requirement for economical, low-emission injection systems.