Great Wall Motors is facing a bear and wants to enter Russia

Worker training at Haftula Factory

The Haval factory in Tula Oblast, Russia, is the northernmost one among the dozen or so factories of Great Wall Motors around the world.

Wei Jianjun, the head of Great Wall Motors, is paying close attention to the changes in this factory in Baoding, 6,000 kilometers away, and is always vigilant.

Great Wall Motors suffered a "bear" in Russia and paid a price of 300 million yuan.

However, Wei Jianjun still chose to build four factories with complete technology in Russia. They were completed and put into production in June last year, with a total investment of more than 500 million US dollars.

Great Wall Motor hopes to restart the investigation of Ilito

The geographical location of the Tula factory, the unfavorable investment environment and the limited automobile market capacity in Russia make it difficult to understand Wei Jianjun’s investment in Russia Where does the determination come from.

Great Wall Motors began to expand into the Russian market more than ten years ago, and currently has 130,000 vehicles in the country.

Haval F7, F7X, H5, and H9 have been put into production locally, and the Tula project has made certain progress.

But thinking about being defrauded of more than 300 million yuan in his early years, Wei Jianjun still has lingering fears and is not completely reassured about the local investment environment.

In May this year, Zhang Xuejun, general manager of Haval Russia Manufacturing Company, told RIA Novosti that Great Wall Motors hopes that the Russian authorities will continue to investigate the Ilito fraud case.

The car of the Investigative Committee of the Russian Federation drove out from the General Administration of Customs

Zhang Xuejun said, “Before May, due to the impact of the epidemic, the relevant work of the Russian authorities had stalled. We understand that But the interests of investors need to be protected.

The company has incurred losses of more than 300 million yuan. The most important thing for us is to restart the investigation as soon as possible."

It is understood that since 2008, Ilito Company has been the sales agent of Great Wall Motors in Russia.

Later, Ilito proposed to assemble Great Wall Motors in the Ramenskoye District of Moscow Region. Great Wall Motors provided auto parts to IMS (belonging to the Ilito Group) and assembled and sold 76,000 SUVs during the period. .

At that time, Yilito acted as an agent to sell Great Wall Motors

Zhang Xuejun said that in fact, “the supply of spare parts was carried out at the insistence of Russia. Yilito would have no assets and was obviously unable to fulfill its obligations.” Obligated shell companies to be included as cooperative agents."

IMS subsequently went bankrupt and Great Wall never received payment for the car kits that had been delivered.

In October 2015, Great Wall Motors filed a lawsuit demanding that IMS, a subsidiary of Yilito, repay the payment due. The local court rejected some of Great Wall Motor's claims because IMS was bankrupt.

In March 2017, Great Wall Motors filed a criminal complaint (large-scale fraud) in accordance with Article 159 of the Criminal Code of the Russian Federation.

In May 2018, Great Wall Motors filed another lawsuit. There was still no substantial progress in the case until the Hafra plant was completed and put into production in June last year.

In June last year, Cheng Xiaoguang, general manager of Haval Russia, sought help from Boris Titov, the commercial inspector of the Russian government.

The protracted review began after Boris Titov wrote to acting Moscow district prosecutor Valery Voynov requesting an investigation into Ilito's criminal fraud case.

Until May this year, Zhang Xuefei, general manager of the Russian Manufacturing Company, once again called for the restart of the investigation.

Nearly five years have passed, and even though Great Wall Motors has invested another US$500 million in Russia, Russia has not given Great Wall Motors an explanation, which is really chilling.

The choice of Tula is not favored

Great Wall Motors was defrauded of more than 300 million when it expanded into the Russian market in its early years, and its choice of Tula to build a factory was not favored by the industry.

1. The geographical location issue

The first is the geographical location. The Haval factory is located in the Uzlova Industrial Park, 35 kilometers away from Tula Oblast. It is more than 200 kilometers away from Moscow and has no advantage in attracting talents.

The factory was completed and put into production in June last year, but until September, the personnel of the factory's quality department were still not recruited.

A Russian engineer once said: "I haven't even gone to the newly built Mercedes-Benz factory in Moscow, let alone the Tula region where the salary is not very high."

In order to meet the localization requirements, Haval Motors must recruit a certain number of localized employees in the factory. It is understood that at the beginning of this year, there were less than 1,000 localized employees.

Tula is not in the automobile industry cluster

When building an automobile factory, we must consider the sales market and the location of the parts cluster.

The Tula region where Haval is located does not have advantages in logistics. The SUV sales market is mainly concentrated in Moscow and St. Petersburg. Auto parts clusters are mainly located in Samara and St. Petersburg. (For example, almost all manufacturers of plastic parts for automotive interiors are located in St. Petersburg and the Leningrad region). There are 50,000 logistics vehicles shuttling between the OEM to the sales market, and the spare parts factory to the OEM.

The Haftura factory is far away from the sales market and parts clusters.

The logistics costs of the Haval factory are difficult to control.

The scale effect of automobiles is reflected in all aspects. For example, if a laboratory used to test corrosion and welding quality only serves one factory, it will not survive because a factory opens its own laboratory. The utilization rate is too low.

There is only one automobile factory, Haval, around Tula.

Look at the layout of Nissan and Hyundai in St. Petersburg and you will understand the intention.

St. Petersburg North Automobile Factory

The above picture is a bird's-eye view of the automobile cluster in the north of St. Petersburg. There are also two automobile manufacturing plants in the south. The distance between any two factories in the north and south is No more than 40 kilometers.

The automobile industry clusters currently formed in Russia include: Kaliningrad, St. Petersburg, Togliatti, Lucca, Nizhny Novgorod, and Tatarstan.

The isolated factories are on the verge of bankruptcy or have closed.

2. Overcapacity of Russian automobiles

The Russian automobile market is currently in overcapacity, and half of the existing factories are losing money.

Russia sold 1.76 million passenger cars last year, a year-on-year decrease of 2.3%, and this year it is expected to have a drop of more than 20%. Newly entered automobile brands can only capture a limited market share.

In the past five years, TagAZ, General Motors and two Ford factories have closed, but the "vacuum" of market demand has not been formed, and other companies' products have quickly filled it.

In addition, factories that have started and stopped include Dervis, Stavropol, Ilito, etc.

The annual production capacity of Great Wall Motors' Tula plant is planned to be 80,000 units. In the first half of this year, it only sold more than 6,000 units. There will undoubtedly be huge losses every day.

When a brand new car brand enters the Russian market, it is difficult to build a brand and compete for a limited market share.

In order to reduce costs and improve competitiveness, major automobile companies around the world are working together to keep warm.

Various alliances have also emerged in Russia to absorb excess production capacity, such as the production of Volkswagen in GAZ and the production of Isuzu in UAZ. ?

It is very necessary for the Haval Factory to join hands with some companies to reduce costs. At the beginning of the establishment of the factory, Haval had the idea of ??sharing production capacity with other Chinese brands, but currently, the idea has not been realized due to cost and other factors.

Currently, more than a dozen Chinese passenger car brands have entered the Russian market, either assembling locally or assembling in neighboring countries such as Belarus before exporting to Russia. Some are also exported from China to the Russian market. Sense of presence.

3. Model competitiveness issues

Currently, Haval’s largest-selling model in Russia is the F7.

Statistics from Russia show that in the first five months of this year, Haval sold 2,917 F7s, with a total sales volume of 4.5 billion rubles, and the price of a single vehicle was approximately 1.54 million rubles (approximately RMB 140,000).

At present, the sales volume of the Russian automobile market is mainly concentrated in low-end models. Lada's Granta, Vista and Kia's Rio are the absolute sales leaders. The market share of the Lada brand alone exceeds 20. Most of these cars cost less than 100,000 yuan.

Haval’s corresponding models are not cheap, and there are many local competitors. It is not easy to significantly increase sales.

4. Policy issues

A year has passed since the completion and commissioning of Haval’s Russian factory, but so far, Haval has not signed a special investment agreement (i.e. SPIC) with the Russian government. Car support policies are not yet available.

For more than a year, Haval and the Russian government have been entangled in the choice of signing the new and old versions of SPIC. Haval prefers the old version, but suffers from the lack of legal basis. Only recently did the relevant Russian departments get approval. It is expected that Haval will sign a SPIC agreement with the Russian government in the next few months.

Russia’s passenger car policies are mainly to attract investment, increase employment and tax revenue, and deepen domestic production. ?

Great Wall Motor’s “adventurous” approach is full of uncertainties. But it is also the Chinese brand most likely to break out in Russia.

Once successful, it will become a model for the internationalization of Chinese car companies.

But he may also become a martyr.

This article comes from the author of Autohome Chejiahao and does not represent the views and positions of Autohome.