Central Asia for production growth
Why Chinese carmakers are rethinking Russia and turning to Central Asia for growth
As sanctions, investor pressure, and rising import fees reshape the Russian market, Chinese OEMs are pulling back and redirecting investment to Kazakhstan and Uzbekistan. While Great Wall, Geely, BYD, and others scale up new plants across Central Asia, the region is emerging as a safer production base and an indirect gateway to Russia’s still-lucrative demand.
When Russia invaded Ukraine, European, Japanese and Korean vehicle companies pulled out of vehicle manufacturing in Russia, as political pressure hit and sanctions bit. Renault had to walk away from its many years of investment in AvtoVAZ. Technically, it has a right to re-purchase its stake in the company although that seems unlikely. Nissan sold its factory to a local company, as did Hyundai. A Russian investor bought the Mercedes van factory near Moscow and for a while produced Chery cars from kits under licence. Volkswagen, Toyota, GM, Ford and Stellantis went down similar paths or just shut down their plants entirely. Chinese kit assembly grew, but imports mushroomed.
Chinese OEMs fill void left by other carmaker withdrawals
As Chinese companies increased shipments into Russia, to fill a void and meet demand, Chery, Great Wall, Geely and Changan quickly replaced international brands in positions 2 to 5 in the Russian sales rankings, Lada remaining supreme at number 1. By the end of 2024, Chinese brands had secured 60% of the Russian market. While this took place largely untrammelled to begin with, the Russian government soon indicated however that it wanted automotive production to take place in Russia, partly to stop the flight of capital abroad as imports surged.
While Chery decided that involving itself in Russia is not worth the sanctions risk and reputational damage with international investors, Great Wall is taking the opposing view...
However, as well as being pressured by the Russian government to boost investment in Russia, to make more cars, or at least increase the local content of imported kits, Chinese companies began to face a different pressure from another direction. Chery, for example, which is seeking a listing on the Hong Kong stock exchange, came under pressure to reduce its activity in Russia in order to attract international investors. Exiting the country, Chery cited additional import fees which Russia has levied as a further reason to reduce its sales activity and any manufacturing investment in the country. Co-incidentally Chery has also stopped assembling in Iran and Cuba to avoid potential sanctions from the international community
While Chery decided that involving itself in Russia is not worth the sanctions risk and reputational damage with international investors, Great Wall is taking the opposing view. Great Wall avoids additional import duties (described as a one-off advance recycling fee) because it has a full manufacturing plant at Tula, south of Moscow. This plant made over 130,000 vehicles last year and has an exemption from local taxes until 2028. Output is due to rise to 200,000 per year and the company is also producing vehicles from CKD kits in another facility in the interim.
A multi-brand factory, called AMMKZ, has recently begun producing models from Changan and Great Wall and a plant, called Allur, is due to produce vehicles from Soueast which is a Chery brand
Other Central Asia countries offer production opportunities
Geely meanwhile has stayed out of producing vehicles in Russia but has a joint venture in Belarus which allows it to ship vehicles into Russia without additional import fees; whether this will be retained in the longer term as Geely expands with its own brands into Europe remains to be seen. And as the Chinese cool on investing in Russia, they are looking at two neighbouring countries with growth potential and from which exports into Russia – which remains an important market – appear to be safe from sanctions, for now at least.
Geely is building a factory in Almaty in Kazakhstan which will start production in 2027, making the Coolray crossover and Emgrand sedan. This will add to the country’s existing production by Hyundai, Kia, Chevrolet and the Chinese brands Jetour and JAC. A multi-brand factory, called AMMKZ, has recently begun producing models from Changan and Great Wall and a plant, called Allur, is due to produce vehicles from Soueast which is a Chery brand.
Kia is the biggest recent non-Chinese investor, having invested US$310m in a new plant in Kostanay, which has an initial capacity of 70,000 units a year; it started production with the Sorento and will soon add the Sportage. Alongside the well-established Chevrolet Onix and Cobalt, the Kia models are expected to be highest volume vehicles made in Kazakhstan. Officially, domestic demand and surrounding central Asian countries are the target markets but the border with Russia is notoriously porous and it is likely that many Kazakh-made vehicles will end up in Russia, any official sanctions notwithstanding.
While Russia remains an economic pariah and an investment risk, the Chinese especially, and Hyundai-Kia too, have no qualms it would seem about investing in central Asia
Partnering with local producers
Meanwhile in nearby Uzbekistan, where Chevrolet was also once the dominant brand courtesy of a local manufacturing joint venture, Chinese brands are becoming increasingly common. BYD recent imports success has been facilitated by establishing a local assembly operation, with 50,000 units annual capacity initially. Some press reports have suggested that capacity there could be raised to half a million a year; it would be unwise to bet against BYD achieving this volume in the next decade or so given its growth profile elsewhere. BYD moreover is not the only Chinese company planning to produce in Uzbekistan, with Great Wall having recently started kit assembly there; full manufacturing is likely to follow. Meanwhile two local companies – Runking Motor and Central Asia Motors – will produce Changan models in the near future.
While Russia remains an economic pariah and an investment risk, the Chinese especially, and Hyundai-Kia too, have no qualms it would seem about investing in central Asia; Kazakhstan and Uzbekistan may currently be minnows in terms of overall volumes but as their governments set up import barriers, with tariffs and duties, investment in local production is the only way for would-be entrants to go. Watch this space.
