Russia’s car market will fully recover to pre-pandemic levels by 2030, Deputy Prime Minister and Industry and Trade Minister Denis Manturov told Prime in an interview ahead of St Petersburg International Economic Forum (SPIEF) on June 13.

Car production in Russia is dominated by foreign European Original Equipment Manufacturers (OEMs) while at the same time the leading Russian producers remain heavily dependent on the import of foreign components in a “spoke and wheel” arrangement that dominates the industry. The car business came to a screeching halt after the invasion of Ukraine as the international companies began to pull out and part imports disappeared. At its low point in June last year, Russia manufactured no more than 3,000 cars. By the end of last year only 11 foreign car brands were left in Russia from over 60 previously – and most of those were Chinese.

The government has been working hard to revive the sector, a major source of employment in several important cities. Manturov says the sector is in line with a car industry strategy that runs through to 2035, with a target for light cars and light commercial vehicles (LCVs) production to regain pre-pandemic levels by 2030.

This year, sales have begun to recover but remain at 60% of pre-war levels. (chart) And the supply problems are slowly being resolved. Famously Russia was unable to make some components like airbags, which had all been imported, but since then Russia’s leading carmaker AvtoVaz reintroduced airbags into its family of Lada cars last August.

Separately AvtoVAZ also plans to export 10,000–15,000 Lada cars in 2023, CEO Maxim Sokolov Prime reports. Sokolov also said that 2024 export plan is about 50,000 cars.

“We have assembly production in Uzbekistan and Kazakhstan, they are ready to be launched, but certain state measures on technical regulation must be taken there. If these measures are taken, the figure may increase, but so far it is within 10,000, but we expect if the decisions are taken in the near future, it could increase by 50%,” he said.

The government has provided the automotive sector effective support previously such as the “cash for clunkers” scheme in 2010 that led to a boost in sales and production as a way to support the sector and keep people employed.

This time round the government is looking at various schemes to provide support. Some Duma deputies have suggested that regional governments should be forced to buy cars for officials. Another idea is to allow mothers of new-borns to use part of their maternity payments to buy cars. And auto credits could be subsidised in the same way the state has been subsidising mortgage rates to bolster the construction sector. However, no decisions have been made yet.

The ministry has been heavily involved in the sale of previously foreign-owned automotive assets as they employ thousands of people which politicises the deals. But after investing hundreds of millions of dollars into their car plants, many of the departing international companies have included buy-back clauses to allow them to return to the Russian market should relations between Russia and the West normalise in the future.

Manturov mentioned that foreign companies like Renault, Mercedes-Benz, and Nissan, who have left Russia, all have buy-back options as part of their deals. The ministry would be involved in these deals should they happen, but Manturov said each one would be negotiated on a case-by-case basis.

The Russian business of Toyota, including the car plant in St Petersburg, has been sold to the Central Scientific Research Automobile and Automotive Engines Institute without a buyback option.

One of the factors lifting the market has been the active participation of the Chinese and Iranian automotive producers that have stepped into the shoes of the departing western companies.

China already has two car plants in Russia and in May Forbes reported it had overtaken Japan to become the world’s number one car exporter after exports increased by 58% y/y with exports to Russia playing an important role in the change.

At the same time, Iran has been a big winner from the emptying out of competition of Russia’s car market. In February Iran's second largest automaker by volume, SAIPA, is set to arrive on the Russian market following the signing of a breakthrough agreement to import 45,000 cars to Russia. As followed by bne IntelliNews, Iran has been under sanctions for years and is now stepping in to help Russia revive its stalled car production through a cooperation between each country’s leading carmakers.

While the car market is about half what it was pre-war when carmakers were producing around 150,000 cars a month, sales have started to rise again this year as demand returns and real incomes rise. The CEO of Russian carmaker AvtoVAZ, Maxim Sokolov says sales in Russia’s car market could recover to 875,000 by the end of this year, clawing back much of the losses caused by the pull out of all the international producers based in Russia.

The sales of new passenger cars and light commercial vehicles (LCVs) in Russia more than doubled over the year to 51,466 units in May 2023, according to the latest report of the Association of European Businesses (AEB).

Russian producers are hoping to make new inroads into the market by producing 100% made in Russia models and intend to more distinctively brand the cars as made-in-Russia.

Manturov expressed the Ministry's support for restoring the Oka light car brand and stated their readiness once proposals are put forth by car manufacturers. Additionally, AvtoVaz is considering shifting its brand names to Cyrillic symbols.

In addition a similar story is playing out in aviation which was as badly hurt by sanctions as cars.

Manturov revealed that the debut flight of the Sukhoi Superjet New (SSJ New) plane, produced entirely in Russia with import-substituted components and the PD-8 engine, will take place soon. Certification of the plane is expected to be completed by the end of 2023. The Minister also mentioned the possibility of giving the plane a distinctively Russian brand.

Furthermore, Russia has been collaborating with China on designing a long-distance plane, with plans for its creation between 2028 and 2030. Manturov emphasised that Russia will continue working with its Chinese partners while also taking steps to design its own plane. The aim is to have the new aircraft ready after 2030.