Russia: The New Battleground For Global Automakers

-8.49%
Downside
45.43
Market
41.57
Trefis
GM: General Motors logo
GM
General Motors

Automakers are becoming increasingly attracted to Russia as it one of the few countries in Europe that is witnessing positive growth. The Russian auto market rose 39% in 2011 to become the second largest auto market in Europe, behind only Germany. Sales in 2011 were helped by a state-backed scrappage scheme that encouraged people to replace their old guzzlers with new vehicles. The market is expected to exceed 3 million vehicles in 2012, and likely to reach 4 million by 2016-2017. [1]

Competition Heats Up

GM currently has three plants in the country; one each in St.Petersburg, Togliatti and Kaliningrad. The Detroit based automaker now plans to pump in additional $1 billion over the next five years to boost capacity of its plants in St. Petersburg and Togliatti. The investments will see the production capacity in St. Petersburg rising to 230,000 vehicles from 98,000 currently. The plant in Togliatti, which is in partnership with Russian automaker AvtoVaz, will see the production jumping 20% to 120,000 vehicles.

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Volkswagen is pouring in additional 1 billion euros in the country in order to fulfill its quest of becoming the world’s biggest automaker by 2018. Part of its investments is to build a 250 million euro engine factory in Kaluga (near Moscow) which will open in 2015. By boosting the local production, the automaker will also be entitled to save on import duties on several of its parts, thus lowering the prices of its vehicles. Volkswagen has had tremendous success in Russia with the automaker’s market share rising from 3.2% in 2007 to 11.0% in the first half of 2012. [2] Similarly, the Nissan-Renault partnership plans to roll out compact cars under the Soviet-era brand Lada (Renault has a 25% stake in AvtoVaz which is popularly known as Lada ), mid-range sedans and passenger vehicles. [1]

Automakers are in the process of rolling out luxury cars, which have high demand in metropolitan cities like Moscow and St. Petersburg, as well as cars priced below $10,000 for customers in the countryside who would like to enter the auto market for the first time.

We currently have a Trefis price estimate of $24.90 for General Motors’s stock, which is about 10% more than the current market price.

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Notes:
  1. Luxury car makers like GM, Renault, Volkswagen flock to Russia in search for growth, August 29, 2012, economictimes.com [] []
  2. The growth of VW in Russia, August 30, 2012, autocar.co.uk []