Kazakh Automobile Industry: on the Way towards the Complete Cycle
The domestic automobile production is on the threshold of a new stage of its development – our automakers promise to bring the localization level at the existing assembly enterprises from 19 % up to 30 % this year.
In mid-February, Toyota Tsusho Corporation and the Government of Kazakhstan signed the Memorandum on production startup of Toyota Fortuner sport utility vehicles (SUV). This project is predicted to become one of the key development directions of Kazakh automobile industry.
Negotiations with Toyota were held over two years. According to the signed Memorandum, SaryarkaAutoProm LLP, being a joint venture of Allur Auto LLP (51 %) and Social and Entrepreneurial Enterprise “Tobol” (49 %), became the Kazakh partner in production of the Japanese motor vehicles. Based on production facilities of AgromashHolding JSC in Kostanay, this company engages in assembly of the UAZ off-road vehicles and IVECO commercial vehicles. As for production of the Toyota Fortuner, it will be launched here in spring 2014. It is planned to produce up to 3,000 vehicles per annum, which will be sold exclusively in the local market.
Within the framework of this project, Toyota Motor Corporation will provide integrated technical guidance and support. Toyota Tsusho Corporation will supply the components from Japan, Indonesia and Thailand, and Toyota Motor Kazakhstan will be involved in sales.
The assembly of the Kazakh Toyota Fortuner vehicles will be carried out via the CKD method (Completely Knocked Down), which implies full-scale motor vehicle production, including welding, painting and other works. A total of 200–250 specialists will be involved in these works. According to the data of the member of the Board of Directors, SaryarkaAutoProm LLP, Andrey Lavrentyev, the funds in the amount of $72.6 million, which were received from BRK Leasing under the program “Road map-2020”, will be assigned for development of the CKD production. In addition, more than $35 million were invested by the group of companies AgromashHolding and Allur Auto. These capital investments will be spent on construction and reconstruction of infrastructure, laying of railway lines, construction of a new storehouse and development of communications.
“This project is a strategically important step in the development of the automobile production industry in Kazakhstan. I believe that it will become one of the key areas in machine-building industry of the country. The arrival of this company (Toyota – editor’s note) is very important for us,” Minister of Industry and New Technologies Aset Isekeshev stated after the Memorandum was signed.
However, some experts are quite skeptical about the significance of this project. In particular, Director of the Qncepto consulting company Oleg Alferov is confident that its initiators are overmodest in the estimates of future production volumes, or welding and painting localization is only a wish which is unlikely to come true. In his opinion, deepening of the technological conversion at output capacity of 3 000 cars per annum is nonsense. “This volume is incompatible with anything more serious than the SKD (Semi Knocked Down) assembly. The localization in this scale of production is void of economic sense. In other words, the project will not give an impetus to the production of automotive components,” the expert considers.
However, success in the development of automobile production achieved recently in Kazakhstan is not to deny. In 2012, the domestic mechanical engineering turned out to be a leader by growth dynamics in the industry, which amounted to 16.2% compared to the previous year. It is precisely the automobile industry that made a substantial contribution to this result. According to the data of the Association of Kazakh Automobile Business (AKAB), a total of 11 domestic automobile assembly plants assembled 21,236 vehicles last year, including 19,094 cars (2.3 times more compared to the year 2011), 1 771 trucks (1.9 times), 191 buses (1.7 times), as well as 180 units of special-purpose machines. It is not difficult to notice that the lion’s share of the products of the Kazakh automobile industry falls on the cars, which assembly is carried out by two enterprises – ASIA AUTO JSC and AgromashHolding JSC.
Established in 2002, the first one became the largest producer in the area of machine building according to the previous year’s results, having produced 16,500 motor vehicles (growth by 125.4%) in the amount of 50 billion KZT. In total, more than 50,000 motor vehicles rolled off the production line of the plant in Ust-Kamenogorsk. Today, the vehicles of the following makes are produced on its facilities: Skoda (Fabia, Octavia, Superb, and Yeti), Chevrolet (Lacettti, Captiva, Cruze, and Aveo), KIA (Sorento, Mohave, Cerato, Soul, Sportage, Optima, and Cadenza) and Lada 4x4.
As for AgromashHolding, the assembly of the first cars started here in autumn 2010. Currently, the Kostanay Plant produces the vehicles of the following: SsangYong (modernized Rexton, Kyron, ActyonSports, Chairman, and NewActyon) and ZAZ Chance. Last year, the enterprise produced 1,797 vehicles of SsangYong and 784 vehicles of Chance.
It should be noted that the creation of the Customs Union, and more precisely, the conditions which were obtained by the local enterprises within its framework, became an impetus for the development of domestic production of both cars and trucks. “In Kazakhstan production of vehicles increased by 20 times over 3 years, having reached historical peaks in all sectors. This success is to a large extent associated with the entry into the Customs Union, which cleared the way for investments into automobile industry, keeping in mind the capabilities of 170 million market of Russia”, Andrey Lavrentyev said.
The common customs tariff which was introduced in July 2011 helped both the manufacturers and the authorized dealers. Within its framework the rate of customs duty for import of used cars increased by several times, which limited their volume of imports. As a result, if in 2010 the percentage of used cars exceeded 80% of the total number of their sale in Kazakhstan, then in 2012 it reduced to 2%. As a whole, the import of used cars (for personal use) reduced by 75 times – from 119,809 in 2011 to 1 599 in 2012. The share of Kazakh vehicles in the structure of new car sales according to the last year’s results was 12.6%, or 10,942 units.
The representatives of the state bodies of Kazakhstan began to change to the vehicles which are made in Kazakhstan. In 2012, they purchased more than 2 500 domestic vehicles in the amount of 11.7 billion KZT. For comparison, a year earlier, the state bodies purchased 1 365 import vehicles in the amount of 9.8 billion KZT.
It should also be noted that within the framework of the Customs Union the commodity producers gained the right to transport their products within the Customs Union without having to pay import duties. In particular, this refers to the motor vehicles assembled by the companies operating in the Customs Union countries.
The manufacturer shall meet the “industrial assembly” criterion, i.e. perform operations on welding, assembly and body painting, as well carry out import of component parts from the states not being the CU participants, of a volume not exceeding 70% of the total cost of automotive components used for production (taking into account the body cost).
There are also restrictions in terms of minimum production volume, which shall not be less than 25,000 units per annum for the Kazakh plants. In Russia, the similar benefits are provided when creating new productions in the volume of at least 300,000 units. This gives distinct advantages for the development of the domestic automobile industry: if from $60 million will be required to invest into construction of a plant with an output capacity of 25,000 vehicles, then the start-up for 300,000 vehicles will cost at least $550 million.
“This is an opportunity to launch new equipment, to conclude the licensing agreements with the distinguished brands, including Japanese and Korean ones, and to obtain the right for a complete production cycle of new models which will be able to provide the markets of the Customs Union countries”, Andrey Lavrentyev discloses the potential benefits.
However, as expected, starting from 2017 Russia will insist on increasing the minimum production volumes necessary for obtaining the benefits, and therefore the products of the Kazakh companies will begin to compete with the vehicles assembled in Russia. That is why our plants need to be successful in expanding their facilities and introducing the complex technological cycles during the remaining time. Presently, the serial production localization in Kazakhstan is on average at a level of 19%, as distinct from Russia where this indicator starts from 30% and in some low-cost segments comes up to 70%.
“The enterprises shall increase the localization share in production and more aggressively update their products. All work should be performed before 2017. Meantime, the companies of Kazakhstan will supply the vehicles with less localization to the Russian market”, Aset Isekeshev notes.
As a whole, our producers expect to receive up to 10% of the Russian market, which is currently about 300,000 vehicles. The Russian party is expected to be able to give the Siberian markets and regions close to the southern borders to AgromashHolding and ASIA AUTO.
Last year the plant of ASIA AUTO successfully passed the homologation procedures (improvement of the technical characteristics for the purpose of the product compliance with any standards or requirements, and obtaining an approval from an official organization) of separate models and has already sent the first batches of vehicles to the Russian consumers. In turn, the manufacturer of commercial machinery Hyundai Auto Trans began to export its products to Belarus and signed the Memorandum on supply of trucks to the eastern regions of Russia.
As for AgromashHolding, this enterprise associates its entry to the market of our northern neighbor with the start of production of the Nomad sport utility vehicle, which shall become the first domestic car with a localization level of 30%. Nomad will begin to be produced in the middle of 2013. The license for production of this model, which will be assembled only in our country, was acquired from the South Korean partners – the SsangYong company. During the first year 15,000 vehicles will be produced. According to the company’s estimates, the new SUV costing from $19,000 will be supplied to eight countries, including Russia, Belarus, Ukraine, Iraq, Pakistan, etc.
“We are moving from the assembly to actual production. This means that the parts will come here at the level of screws and bolts. They will be sent to the welding line where the body will be completely welded. After that, it will be sent for painting and then to two assembly lines: the first one – where motors and electronics will be installed, and the second one – where the vehicle itself will be assembled”, Mr. Lavrentyev explains.
An important event for the domestic automobile industry will be the launch of a joint project between Autovaz and ASIA AUTO this year, which have agreed to create a full-cycle plant with an output capacity of up to 120,000 vehicles per annum. The total volume of investments into this project is estimated at $400 million.
New facilities for production of automotive components, welding, painting and assembly of the vehicles with the volume of up to 60,000 units per annum will appear at the first stage of the project by 2014 at the production site in Ust-Kamenogorsk. The localization level shall be at least 30%. The model lineup of the enterprise will include the vehicles LADA Granta and LADA Kalina-facelift. Moreover, the partners consider a possibility to produce other models of Autovaz, as well as Renault and Nissan in the SKD mode (Semi Knocked Down assembly).
During the second stage of the project implementation the production capacities of the plant will increase up to 120,000 vehicles per annum. Kazakhstan, the Siberian and Far Eastern Federal Districts of Russia, Central Asian and Trans-Caucasian countries are defined as the sales markets for its products.
However, all this is in perspective. Meanwhile, the problem of expanding the sales markets for the Kazakh manufacturers is far from being the most urgent one. Due to the deficit of vehicle sets and unresolved issues regarding the timely delivery of vehicles, the demand cannot be always provided to the fullest extent, even on the part of the domestic consumers who sometimes have to wait for their vehicles up to half a year.
For example, in 2012, 1 000 units of commercial machinery were planned to assemble at the plant of Hyundai AutoTrans, but resulted in only 759 units released. Seven hundred and eighty-four vehicles of Chance make were produced at the plant of AgromashHolding, while the plan being 1 500 units. However, this year our manufacturers expect to reduce the queue and receive all the promised vehicle sets from the partners.
Thus, the Asia Auto company intends to master the eight new models of the brands such as Chevrolet, KIA and Skoda, as well as to increase the total production volume of vehicles by 2.5 times. In turn, AgromashHolding will launch the two new models – SsangYong Nomad and ZAZ Vida, expanding its production volume by 3 times.
The near-term plans of Hyundai AutoTrans are to start the production of heavy-tonnage machinery with a carrying capacity of 10 tons and higher (Hyundai HD 270, HD 500), as well as four-and-four models of Hyundai trucks. This year, the company shall sell 2,045 units of commercial machinery, 800 of which will go for export.