Of all Russia’s sectors hurt by Western sanctions none were wounded as badly as the car market. Within a month of the sanctions being imposed the output of the industry that had been churning out over amn vehicles a year, fell to a mere 3,500 cars produced in June 2022.

During the boom years of the noughties, there had been a gold Russia as six of the world’s biggest manufacturers rushed into the burgeoning market. In the first half of 2008, Russia briefly overtook Germany as the biggest car market in Europe as production topped one million vehicles in the first half of that year, until the global financial crisis of that year knocked the froth off the market.

Since then, the market has gradually recovered as incomes rose slowly and foreign brands came to dominate sales, led by the Ford Focus. But the imposition of the first rounds of sanctions in 2014 following the annexation of Crimea and the subsequent four-year long recession, knocked sales back and AvtoVaz, the maker of the legendary Lada, retook the pole position in sales as Russian’s budgets were reduced again.

Car production and sales was picking up again from about 2018 when the recession came to an end and sales were booming by the autumn of 2021 when the geopolitical tensions between Russia and the US rapidly escalated ending in the invasion of Ukraine in February 2022.

Car imports to Russia have not been officially sanctioned, but were instantly caught up in self-sanctioning by western firms, which mostly cut business ties with Russia. In particular, the decision to halt the import of car parts is what brought production to a standstill over night. By the end of 2022 there were only 11 foreign carmakers left in Russia from over 60 pre-war, almost all of them Chinese.

Despite the Kremlin’s efforts to encourage foreign carmakers to set up local production of car parts, the European Original Equipment Manufacturers (OEMs) continued to use the “just in time” system where parts were manufactured in Europe and then imported to Russia to finish production of finished cars, a system pioneered by Renault that took over the AvtoVaz business.

Chinese companies had already entered the Russian market and were building up production and sales before the war started, but stepped gleefully into the hole left in the market after the OEMs left overnight.

Chinese Russian car production and sales have exploded since sanctions were imposed allowing the car sales market to recover far faster than most analysts expected. In addition, China’s premier EV producer, BYN has become the biggest producer and exporter of electric vehicles in the last year, thanks to the strong and large demand from the Russian market.

Preliminary data from the China Passenger Vehicle Association (CAPA) reveals that Chinese automakers exported 5.26mn vehicles in 2023, marking a significant milestone and outpacing Japan's 3.99mn exports in the same period, The Bell reports. Chinese companies sold 800,000 last year, five times more than in 2022. Key beneficiaries of this surge include the leading Chinese brands Chery, Geely, and Great Wall.

“It’s a tsunami of Chinese cars,” bne IntelliNews’ Moscow correspondent says. “The streets used to be full of BMWs, Mercedes and Audis. Now it seems that every second new car is Chinese.” The Russian car market has played a pivotal role in China's ascension as an international carmaker. However, exports told The Bell that the growth of sales of Chinese cars in Russia may be topping out as the demand has already been largely met, and additional supply may exceed requirements.

Car sales in Russia still remain down from their pre-war levels, but they have made up at least two thirds of the ground lost. The Ministry of Industry and Trade in Russia reported a total of 1.056mn new passenger car sales in 2023, representing a 62% increase from the previous year. However, the market has become import-dependent, with vehicles produced in Russia constituting only 49% of the market as the lack of imported parts still weighs on production. Domestic production of cars remains 82% down from the end of 2021. Even AvtoVaz has been dependent on the import of things like airbags, on board computers and electric window winders.

The disruptions in supplies and parts have also pushed prices up. The average price of new cars in Russia has surged, reaching RUB2.8–3.1mn ($24,533-$27,162) in the second half of 2023, compared to RUB2.29mn in 2022.

Domestic production has also been stymied by the departure of the OEMs, leaving their factories standing idle, while they find Russian buyers. As the local economies of so many Russian cities, like Nizhny Novgorod and Kazan, remain heavily dependent on their big car plants, the government has been very active in finding new Russian buyers and domestic investors.

The Renault-Nissan stake in AvtoVaz was bought back by the state for a token RUB1 as the city of Nizhny Novgorod is effectively a mono-city where the majority of incomes is derived from salaries paid to workers at the plant. Until these plants are reorganised, Russia will remain dependent on imported cars.