Chinese automaker wants to build a plant for $300 million

Despite the chronic decline of the Russian car market, the Chinese automobile concern Lifan plans to build a plant in Russia with a capacity of up to 100 thousand cars per year, investing about $300 million in it. Lifan is the best-selling Chinese brand in Russia, but its market share does not exceed 1%, and sales are now falling faster than the industry average. Many Chinese manufacturers have announced localization plans in Russia, but they still occupy only 3.5% of the market, and analysts doubt that all their plans will be realized.

Yesterday at the Moscow Motor Show, the general director of the Russian representative office of the Chinese automobile concern Lifan, Sun Zejun, said that the company plans to build a plant in Russia from scratch, with investments at the first stage amounting to $150 million. The plant's capacity is planned at 60 thousand cars per year. Construction could begin in 2015 and be completed in two and a half years. Mr. Sun added that expanding capacity and building an engine plant will cost Lifan another $150 million. Deputy General Director of Lifan Motors Rus Vyacheslav Galuzinsky explained yesterday to Kommersant that at the second stage the capacity could increase to 100 thousand cars per year, and Lifan plans to implement the project using his own funds.

The final decision on construction may be made before the end of the year, Mr. Galuzinsky said. According to Sun Zejun, negotiations are underway “with a number of Russian regions,” including the Kaluga region. Vyacheslav Galuzinsky added that Tatarstan, Tula and Samara regions are also being considered as sites.

According to the Association of European Businesses, in 2013 Lifan became the best-selling Chinese brand in Russia - sales of the brand increased by 34%, to 27.5 thousand cars, and Lifan’s market share was 1%. Sun Zejun said yesterday that in 2014 Lifan expects to maintain sales at 2013 levels. However, according to the results of the first half of 2014, Lifan sales decreased by 12%, to 10.1 thousand cars, with an overall market drop of 7%. In July, sales of the brand fell by 29%, to 1.8 thousand cars. Other Chinese brands also show a drop in sales: for example, in July, sales of Geely fell by 51%, to 1.3 thousand cars, and Chery by 34%, to 1.2 thousand cars. At the same time, the total share of Chinese brands in the Russian car market remains insignificant - at the end of last month it was at the level of 3.5% (about 6.5 thousand cars).

Chinese automakers have been developing assembly in Russia for a long time. Since 2007, Lifan has been assembled at the Circassian Derways plant; in July, Chery announced the start of assembly here with a volume of up to 30 thousand cars per year. In addition, Geely, Haima, Brilliance, Luxgen are assembled on Derways. On May 20, during Vladimir Putin’s visit to China, Great Wall, which now assembles cars in Gzhel, entered into an agreement with the Tula region to build a plant for 150 thousand cars, in which it is planned to invest $500 million.

Vladimir Bespalov from VTB Capital says that many Chinese concerns have announced development plans in Russia, but “the question is how many projects will be implemented.” “If all the major Chinese brands decide to develop here, then it will be difficult to find their niche with a volume of up to 100 thousand Lifan cars,” the expert notes. “And the Russian market is unlikely to recover at a rapid pace.” Mr. Bespalov added that building a plant with a capacity of less than 60-100 thousand cars is hardly advisable from the point of view of the economics of the project.

Egor Popov, Yana Tsinoeva

Lifan was drawn to Russia