2 billion USD government support for the automotive components localisation

2 billion USD government support for the automotive components localisation


Kommersant.- The Ministry of Industry and Commerce of Russian Federation has developed a concept for an improvement programme on the production of high-tech domestic components and systems for the automotive industry and sent it to the Ministry of Finance and the Ministry of Economy for approval. Within the framework of the concept, it’s planned to allocate 150 billion rubles ($2.3 billion) on the development of automotive components production from the budget until 2025, including an amount of 10 billion rubles in 2019. An additional amount of 44 billion rubles will be provided as off-budget finance.

The traditional Russian manufacturers are amongst the interested parties: GAZ Group, Kamaz, Sollers and Avtovaz for certain types of components. The document also states that important components have been identified for GAZ, Kamaz and Sollers within the scope of the development of the programme. Neither the Ministry of Industry and Commerce nor the companies have made any comments.

The concept was based on the request of GAZ form the government, regarding automotive components base replacement. The company has been subject to US sanctions since 6 April, the postponement of the application of which is due for review on 8 November. The idea was later redesigned to fit the needs of other Russian players, as told by the source of Kommersant. Another source of the newspaper believes that this is another attempt by the Russian manufacturers to ask for money from the budget, hiding behind the threat of sanctions.

The concept developed by the Ministry of Industry and Commerce includes, for example, the launch of the production of a diesel engine with up to 3-litres capacity for LCVs and passenger cars. It’s planned to allocate 2.5 billion rubles on the project from the budget and 450 million rubles from off-budget funding. The production of engine components, including parts of gas distribution mechanism, chassis components, including the brake system, transmission and others is also within the plans.

The other ministries have approached the idea with scepticism, according to the sources of Kommersant. One of the sources has noted that during the discussion, the representative of the Ministry of Economy spoke about the lack of sense in investing in outdated technologies: since the project will be financed by budget money, it is necessary to develop modular platforms for electric vehicles. The Ministry of Finance, on the other hand, is not ready to allocate such an amount of funds, as stated by the source. A source of Kommersant from the market believes that the days hundreds of billions were allocated for the support of the automotive industry have passed. Broadly speaking, the sources share the opinion that the possibility of the implementation of the programme is very unlikely, although some of them see the necessity of the localisation of the automotive components. A Kommersant source in the expert community identifies the scheme as: “modernisation through government support.”

The main organisation for the implementation of each project should be run by Russian companies with expertise in development, engineering and market launch, as well as achieving sales and export volumes. A non-profit structure, which will be able to issue licences for symbolic funds, should be chosen as the head of the organisation, according to the source. Not only the main company, but also the consumers will be responsible for the achievement of goals, which includes the technical level, the quality and the cost of components, sales and exports, within the framework of the concept created by the Ministry of Industry and Commerce.

The potential production volumes of automotive components will most likely be insufficient for the cost recovery of the project, according to the head of the AEB Automotive Component Manufacturers Committee Andrei Kossov. Kossov has added that unification of components is technically difficult, in addition to questions of intellectual property and warranty obligations. There are cases of foreign component usage, for example, Peugeot and Renault have used BMW and Daimler engines respectively, however, such partnerships take years to form and the opportunity itself lies in the model development stage: “One must have a solid business case in order to participate in such foreign groups of companies, as well as a motivation from the government”. Usage of one engine is difficult to implement in practice even amongst Russian car manufacturers, according to Kossov. As practiced in the world, engineering companies are involved in the development of components from scratch and the further development of production is carried out by the customers: “In fact, the development will become the intellectual property of the customer in the Russian Federation, but such services cost millions of dollars.”