The owner of UAZ “Sollers Group” and the Chinese Chery will create a strategic partnership

The fact that Sollers Group Vadim Shvetsov (owns the UAZ brand) and the Chinese Chery Automobile have a project to localize the production of Chinese brand cars on the basis of the Ulyanovsk Automobile Plant was told to journalists by the press secretary of the President of Russia Dmitry Peskov following the results of negotiations between Vladimir Putin and the President of China Xi Jinping in Beijing February 4.

A Sollers Group representative confirmed to Vedomosti that the two companies are negotiating “a large-scale strategic partnership.” It, according to him, includes not only the production of cars, but also the development of new technologies in the field of electric transport, promising modules and materials for the automotive industry. The parties plan to fix the specific parameters of the joint project by mid-2022.

A Chery representative told Vedomosti that the company’s head office is negotiating not only with Sollers, but also with other enterprises in the country, on the subject of locating production in Russia. He declined to comment on the details of the talks.

According to the information available to the Ministry of Industry and Trade, we are talking about cooperation that covers promising technologies in the automotive industry, such as electric vehicles, unmanned technologies, telematics, says a representative of the department. “The ministry welcomes the development of international cooperation, in which domestic enterprises take part, and sees this as a development prospect for the Russian car market,” he told Vedomosti.

This is not Chery’s first attempt to enter the Russian market with an assembly. In 2008–2009 Kaliningrad “Avtotor” in an experimental mode began, in fact, a screwdriver assembly of brand machines without deep localization. But Avtotor had to curtail the project. According to unofficial information from sources close to market participants, the Ministry of Industry and Trade was then extremely cautious about the expansion of the Chinese automobile industry in Russia. Later, the main owner of Avtotor, Vladimir Shcherbakov, said that with the arrival of other foreign auto concerns on the Russian market, the position of the authorities in relation to Chinese brands became more loyal.

Sollers in 2021 began the final stage of a three-year restructuring of UAZ (Vedomosti wrote about this on November 19). The key goal is the concentration within the company of assets and competencies according to the model used in the global automotive industry, the company explained. These assets include stamping, welding, body painting and vehicle assembly.

The restructuring was necessary to create a partnership between UAZ and the global automaker, a source familiar with Sollers’ plans explained to Vedomosti. On their own, neither UAZ nor Sollers could cope with the investment burden that arises when creating a new model line, he said. It was assumed that the foreign partner would bring its own platform for the production of cars under its own brand and under the UAZ brand. At the same time, the plant is going to continue assembling its own models.

The Sollers representative did not confirm to Vedomosti the possibility of using the Chery platform as a promising platform for UAZ. A source familiar with the group’s plans noted that when it comes to such a large-scale partnership, it is logical to consider the maximum unification of the component base. This will give the necessary volumes of production, which is the economic meaning of localization, he explains.

Chery cars, most likely, will be made not only at the Ulyanovsk site, since there may not be enough space there, the source says. He added that the production of Chery is supposed to be established immediately in a full cycle – with welding, painting and assembly. The launch of production will take place no earlier than the second half of 2023. “In the context of cooperation on the development of electric vehicles, the localization of the electric motor, battery and inverter is also being considered. For the modules of electric vehicles, the possibility of using Russian materials and subcomponents is being considered,” the source added.

The total production capacity of Sollers is about 240,000 vehicles per year. In addition to the site in Ulyanovsk, Sollers has a joint venture with Ford (the Russian group has 51%) for the production of Ford Transit commercial vehicles in Yelabuga, as well as a parity joint venture with Mazda in Vladivostok (assembles Mazda CX-5 and CX-9 crossovers and Mazda sedans 6).

Chery is one of the fastest growing brands in the Russian market along with other Chinese brands. In the pandemic 2020, its sales increased by 80% to 11,452 cars, with a general market decline of 9%, according to data from the Association of European Businesses. And in 2021, Chery’s sales jumped more than 3 times to 37,118 vehicles amid a general shortage of cars caused by problems with the supply of microelectronics. Another 3756 cars were sold by the sub-brand of the Chinese company Exeed. In total, this is only 548 cars less than UAZ sold in 2021 (+17%).

Only Haval sells more than Chery among Chinese brands in Russia (39,126 cars in 2021). So far, this is the only Chinese auto concern that has a production facility in Russia (in the Uzlovaya industrial park in the Tula region). The plant in Uzlovaya was launched in the summer of 2019, Haval’s investments amounted to about $500 million. In September 2020, Haval signed a special investment contract with the Ministry of Industry and Trade of the Russian Federation (fixes working conditions, including benefits, in exchange for investments). The Chinese concern undertook to invest another 42.4 billion rubles. in the localization of the production of crossovers, SUVs, engines and gearboxes.

Sollers is more interested in Chery than the Chinese are in the Russian company, says Sergey Burgazliev, an independent automotive industry consultant. According to him, Chery had the opportunity to independently establish the production of electric vehicles in Russia by applying for a special investment contract, but they did not do this. Sollers can offer Chery the production of cars on a full cycle, and if, in addition, it wants to make a new car on Chinese units, it will be very convenient in terms of purchases and logistics, the expert said.

A project for in-depth localization of another foreign auto concern in Russia may be appropriate, especially if it is the production of electric vehicles, Dmitry Babansky, head of projects at SBS Consulting, believes. Now the electric economy segment is represented here mainly by used cars, respectively, the appearance of production in Russia will come in handy, he argues.

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