BMW Group, due to the current geopolitical situation, suspends deliveries to the Russian market and local production of cars, a company representative told Vedomosti. Further decisions will be made based on the development of the situation, he says.
“Currently, we are working on solutions that, in the context of limited supply of spare parts, will allow us to fully fulfill our warranty obligations to customers. We will also continue servicing our customers’ cars in compliance with all BMW standards,” the source said.
The assembly of BMW cars was launched at Avtotor in 1999. Since 2012, the parties have been negotiating the construction of a separate BMW plant at the site of the Kaliningrad holding. But the economic crisis at the end of 2014 and the subsequent drop in car sales in Russia put the negotiations on pause. They returned to the active stage only at the turn of 2016–2017.
A little less than three weeks ago, on February 10, a representative of Avtotor told Vedomosti that the production of BMW cars at a plant in Kaliningrad would continue “in accordance with the development priorities of the Russian auto industry.” In other words, the German concern decided to switch from screwdriver assembly of premium foreign cars to full-cycle production, which includes welding, painting and assembling cars.
As part of the signed agreement, it was supposed to localize the production of BMW X5, BMW X6, BMW X7 SUVs and BMW 5 series passenger cars at Avtotor. This time the representative of the Kaliningrad company declined to comment.
By 2019, the government has formed three possible options for the presence of the German automaker in Russia. BMW had to either build its own plant in Russia, similar to what Mercedes did in the Moscow region, or integrate into a special investment contract (SPIC) of Avtotor and increase localization, or turn off the screwdriver assembly in the Kaliningrad region and switch to direct import. The German company was given two years to make a decision. In 2020, the then president of the BMW Group in Russia, Stefan Teuchert, said that creating its own production in Russia as part of a separate SPIC does not make economic sense for the company.
Avtotor entered into a SPIC with the Ministry of Industry and Trade and the government of the Kaliningrad Region in mid-2019 in the wake of the signing of such contracts of the first version with automakers. Then the company undertook to invest at least 12 billion rubles. in the localization of production, the creation of an engineering, training and IT center. A SPIC is a framework instrument that guarantees a company non-deterioration of business conditions for the duration of the contract and tax benefits in exchange for localization obligations. It is also the main criterion for confirming that the products are made in Russia. The validity period of SPICs of the first version is 10 years, in the second version they were extended to 15–20 years, depending on the amount of investments.
How much BMW planned to invest in the development of localization in Russia is unknown. But even before the German concern made the final decision to stay in Russia, Avtotor began building a new universal plant with a capacity of 50,000 cars a year. It was designed by the German firm Durr. An employee of one of the Russian automakers estimated for Vedomosti the cost of such construction at 250 million euros, of which at least 60 million euros was for painting equipment, more than 30 million euros was for a welding line.
According to the Association of European Businesses, BMW cars are the most popular in the Russian premium segment. Their sales for 2021 increased by 10%, amounting to 46,802 vehicles. Approximately two thirds of them were imported last year, despite the presence of an assembly at Avtotor.
Sergey Burgazliev, an independent consultant on the automotive industry, believes that BMW will not resume deliveries of cars to Russia any time soon – “in six months or a year, at least.” The company will not risk the European market for the sake of the Russian one, which is important for the group, but relatively small, the expert states.