Timber used to pay for the car, and there's no great profit: The heart-wrenching story behind exporting cars to Russia and Central Asia.

In 2023, China's automobile exports 4.91 million vehicles, becoming the world's largest exporter for the first time. Among them, new energy vehicles are exported by 1.203 million. The era of great navigation has begun, hiding strange and arduous stories of struggle. This series of articles mainly records how Chinese car companies go overseas to find new opportunities in the new pattern of the electric and intelligent global automobile industry.

In 2023, the Khorgos port has never been so lively. This small border town near Kazakhstan and Kyrgyzstan gathers new cars from all over the country daily, waiting to pass customs inspection. To this end, Khorgos Customs has to implement 24-hour freight clearance and open a green channel for the export of domestic cars.

Batches of cars will travel deep into the heart of Asia via the China-Europe train and cross-border roads, eventually reaching Central Asian countries and Russia. In particular, since 2022, Russia and Central Asia have become a hotspot for car exporters.

According to the statistics of Kyrgyzstan's National Statistics Committee, the country imported 79,000 cars from China in 2023, an increase of nearly 45 times year-on-year; the data of Kazakhstan's National Statistics Bureau shows that 61,400 vehicles were imported from China last year, and the import volume increased by 3 times.

More cars are flowing to Russia. According to the China Automobile Association, Russia imported 841,000 cars from China in January-November 2023, an increase of nearly seven times year-on-year. "BYD made a lot of money in Central Asia last year!" a BYD expatriate told 36Kr, unable to hide the excitement in his tone.

For example, in China, looking up to the price of U8 1.098 million yuan, BYD Song L's top version price is 249,800 yuan, but the price of both in Uzbekistan is doubled, about 2-million-yuan, 500,000 yuan. A local BYD dealer sold nearly 10,000 cars in the three quarters of last year, and each car sold can be drawn 8%, at least $2,000.

Like the discovery of a gold mine, not only did Chinese OEMs flood into Central Asia and Russia, but many car exporters also joined the gold mining journey in the form of "parallel exports". There were even advertisements for "car export training courses" on social platforms. It seemed that as long as they paid a few thousand yuan, everyone could join the car export carnival.

Unlike what they expected to make a fortune, almost all the car exporters who talked to 36Kr had never heard of the industry story of getting rich.

"Maybe you can make a lot of money in the short term, but if you lengthen the cycle, under the influence of large fluctuations in exchange rates and prices, you can't avoid profit compression. Unless you make a lot of money and then stop, but such people are also rare," said one car exporter.

This does not stop OEMs and exporters from rushing to Central Asia and Russia. According to CCTV coverage, in 2023, Xinjiang ports exported 568,000 commercial vehicles, an increase of 407.6% year-on-year.

But the introduction of a decree in Russia this year has sobered the dreams of many parallel exporters.

Now when it comes to exporting cars to Russia and Central Asia, "caution" is the keyword they have repeatedly emphasized. In the future, these two major market regions will be the competition field for large groups.

From a sudden market explosion to a return to rationality, the two major automotive markets in Russia and Central Asia have changed in only two years, which may also be a preview of Chinese automakers going global.

1

Use wood to pay for the car, and export each and every one of them

In February this year, a huge advertisement for the M5 appeared on the big screen of Moscow airport, announcing the entry of Celus, one of the most high-profile Chinese carmakers in 2023, into the Russian market.

The ad is run by MB RUS JSC, the exclusive Cyrus distributor in Russia, which announced a partnership in January to sell the M5, M7, and M9 models in Russia. Before that, the dealer was the Russian agent of Mercedes-Benz.

Cyrus is just one of the Chinese carmakers entering the Russian market. According to the Russian analysis agency Auto stat, in 2023, with 19 car brands including BAIC, Haima, and Hongqi entering the Russian market, plus existing and other imported models, the total number of Chinese car brands sold in Russia will be about 60.

When you walk on the streets of Russia and Uzbekistan, Chery, Geely, and Haval models can be seen almost everywhere on the road, and some of them are used for taxis with the uniform bright yellow paint. But when you open the Yandex GO taxi, you will find that if you take a taxi, you will pay more for the Chinese brand models - they are not in the economic category.

But these are not Chery's most high-end models, Star Era ES overseas price of about 700,000-yuan, Chery Automobile Co., Ltd. Party Secretary, Chairperson Yin EXEED said, Star Era ET export price will exceed 1 million yuan.

"Almost all models exported to Russia and Central Asia can double the price compared to China. The idea is the domestic new energy vehicle that is most popular in Russia and Central Asia. For every Li Auto sold, the exporter can get at least 30,000 yuan in profit," said several exporters.

Li Auto officials have said that it will not enter the overseas market until 2025, but it has already established a special department to export cars by special personnel. After the cars are sold to exporters, the exporters then expand into overseas markets. This method of purchasing cars through various channels and exporting them as used cars are called "parallel export".

Since there are no after-sales services by default for car parallel exports, there are also auto parts sold together, which will be shipped to customers along with the vehicle.

In order to meet the needs of exporters, some car companies, such as JK, can also provide services to modify the language of the car machine when the product is sold to dealers. Li Auto has relatively higher user rights, and users can modify the language of the car machine by themselves.

Almost all the models on sale you can think of can be sold abroad through parallel exports. Li Auto CEO Li Xiang once said that the peak of exports in a single month this year reached 3,000 vehicles; Neta Auto exported more than 20,000 vehicles overseas in 2023, an increase of 567% year-on-year.

Li Hongtao, chief executive of car exporter World Star Alliance, told 36Kr that in the past year, the company exported more than 4,000 cars with 30 people, and the turnover reached 150 million US dollars. In the first five months of this year, the turnover was close to 20 million US dollars.

Car exporters source goods from car companies or dealerships across the country, and exporters repeatedly compare to find the lowest price source for re-export. This means that the export of cheaper similar models to Russia will disrupt the local car market.

Some car companies, such as Chery, issued orders to dealers across the country to strictly prohibit dealers from participating in car exports and found that they fined stores tens of thousands of yuan at a time. However, this did not prevent Chery's various brand sales from appearing in various car export groups. Their WeChat names often carry Chery, iCar, EXEED, and other brands.

"Dealers don't make money by selling cars, but by insurance and after-sales services. Now car companies are putting a lot of cars on dealers, but dealers have a hard time digesting them in a short period of time and can only export them," a used car exporter told 36Kr. He said GAC had also contacted him to export its models overseas.

Car companies that are not very vocal in the domestic market also hope to increase sales through exports.

A car exporter said that it has been officially authorized by Huanghai Automobile to complete the car import certification in Russia. Once the model certification is passed, they can convene a large number of small car exporters to purchase, or find local Russian dealers to cooperate.

The complex international environment makes it difficult to collect and pay for car exports. Large payments are often not directly remitted from Russia to China, but are first transferred to the exporter's Central Asian branch and then to the country.

A Chery source told 36Kr that about 70% of Chery's overseas sales are contributed by the Russian market, but due to economic sanctions, Russian dealers do not have full payment on hand and can only pay with equivalent wood. Considering the high freight, Chery will make some wood locally into furniture and sell it, and the remaining wood will be shipped back to China.

What does 2023 mean for car exporters? The answer for almost every exporter is the export peak. The common example they cite is that after the national second-hand car export pilot qualification was opened in 2023, a large number of cars were shipped to Kashgar and Khorgos, and then transshipped to Moscow through Bishkek, the capital of Kyrgyzstan. Due to the rapid increase in export volume, there was even congestion.

"The cages were stuck at the port, and new cars kept coming, but the port's carrying capacity was limited. At that time, the parking lots in Kashgar and Bishkek were full of cars. The cars that the company shipped to Bishkek in October last year were not all shipped to Moscow until before the Spring Festival this year," Gao Lei, head of overseas market development at WPU, told 36Kr.

All car exporters are looking forward to showcasing their capabilities in 2024, but changes are coming soon.

2

The loophole of tariff-free is closed, and the "gold rush" is cold

Compared with 2023, parking lots on the Xinjiang border are no longer as lively as they used to be.

A logistics provider told 36Kr that last year, an average of at least 800 vehicles were transported to Central Asia and Russia per month, but now, only a maximum of 200 vehicles can be transported per month.

The change came on April 1 this year, when Decree No. 152 of the Russian government came into effect. The decree requires that cars imported from Eurasian Economic Union countries (Russia, Kyrgyzstan, Kazakhstan, Armenia, or Belarus) with low tariffs must be paid in Russia.

The Russian Ministry of Industry and Trade explained that buying cars imported from Eurasian Economic Union countries has an unreasonable advantage over buying and paying taxes locally in Russia.

In other words, the low-tariff loophole has been closed by Russia, and the cost of re-exporting cars from Central Asia to Russia will increase by about a third.

Before this, car exporters knew that the export threshold was about to be raised. On October 1 last year, Russia banned parallel imports of more than a dozen Chinese car brands operating in Russia.

However, due to the previous car congestion in Bishkek, the above-mentioned logistics provider estimates that there are still about 30,000 cars stranded in Bishkek, too late to transfer to Russia before the tariff increase.

The new decree has blocked the way for exporters to export to Russia with low tariffs. To ensure that there are still profits, exporters can only keep looking for low-priced sources of goods to squeeze out more profits. Many exporters said that in 2022, the profit of bicycles exported by cars will be at least 20,000 yuan, and this year, the profit can even be compressed to about 2,000 yuan, "only to earn a service fee".

In addition, more and more car exporters are building warehouses in Russia that can both park cars and serve as showrooms. Customers place orders after an on-site visit and receive goods in a few days. For exporters without overseas warehouses, it often takes about three weeks to ship a car to Russia.

The new law not only increases the export cost for exporters but also indirectly affects some automakers to a certain extent.

Although the ideal, Neta and other OEMs have not laid sales channels in Russia, some of their overseas sales come from Russia. After the decree takes effect, the comprehensive tariff will be as high as 40%, and the price of an ideal L9 priced at 650,000 yuan in Russia will skyrocket to about 900,000 yuan.

"In the past, an average of 400 Li Auto vehicles were shipped to Moscow every month, but no new energy vehicles have been shipped in the last month," said one logistics provider.

3

On the Silk Road, there is still hope for the Auto bots

In any case, Russia and Central Asia remain the most concerned markets for China's automobile exports.

According to data from Russian automotive market analysis agency Auto stat, in November 2022, there were only 1,000 dealerships of Chinese brand cars in Russia, but in October 2023, that number became 3,550.

More Chinese car brands are also starting to enter smaller Central Asian countries. In 2023, BYD announced plans to build a factory in Uzbekistan, which will start production in 2024. Extreme Krypton has entered Kazakhstan and Uzbekistan. Li Auto has announced that it will expand into the Central Asian market in 2025.

Chery Automobile, which entered the Russian market more than ten years ago, divides Central Asia and Russia into different regions, and the corresponding team follows up on local sales and refines operations.

Last year, Chery Automobile restructured its organizational structure and established an international business division to lead the development and management of Tiggo 7 and below products and product competitiveness.

A Chery designer told 36Kr that Chery's strategy for overseas models used to be to slightly adjust the models that were not selling well at home and export them abroad. But this year, Chery's international department team began to develop models for overseas markets. They designed different model plans through market surveys, selected at least three plans to organize model and renderings review, and initiated external agencies to conduct user research to determine which plan to use for mass production.

Russia has also embraced Chinese car brands. Boris Titov, the Russian chairperson of the China-Russia Friendship, Peace and Development Committee, has said that the Russian government has put forward a proposal to shift the supply of complete vehicles from China to Russian production, and will discuss this issue with Chinese car companies in June this year. Representatives of more than 40 companies are expected to attend the meeting.

Auto exporters seize the market through capital and channel advantages. After the World Polaris Federation obtained the qualification for the pilot export of used cars last year, it built an exhibition and sales center, a parts warehouse, and a maintenance center in Moscow. The exhibition and sales center alone reached 5,200 square meters, and the annual rent was millions of yuan.

Long cycle, the high investment will be the base color of automobile cross-border trade. The auto export industry has begun the survival of the fittest, capital, channels, and one will be eliminated by the market.

However, the OEMs and exporters contacted by 36Kr have no plans to withdraw, and the auto export training courses held offline across the country are still in full swing. Most of the participants are foreign trade personnel, second-hand car dealers, and auto dealers.

Opportunities do not come equally to everyone, but for the Chinese who went to Russia and Central Asia to search for gold, the ancient Silk Road may have hidden the hope of wealth they had been seeking.

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