The Car Market of Russia, China, and Iran's Missed Opportunities

Following the imposition of heavy sanctions against Russia two and a half years ago and the withdrawal of many Western companies from cooperation with this country, a new chapter in relations between Moscow and Tehran has opened. In the context of international isolation, Russian political officials and traders have for the first time viewed Iran as a serious ally and found the country's new trade routes, capabilities, and experiences in circumventing sanctions beneficial. In 2022, a significant shock hit the car market in Russia. According to official statistics, this market shrank by about 60% and returned to the level of the 1990s. In this situation, Russia even seriously considered Iran as a car seller. However, by 2024, it has become clear that the car market in Russia is completely dominated by China. Before the collapse of the Soviet Union, it produced about two million cars of various types annually and exported about 300 to 400 thousand cars to its allied countries. After the Iron Curtain fell and trade with Western countries was liberalized in the early 1990s, foreign cars quickly captured about half of the car market in this country. In 2001, Ford was the first foreign company to launch its production line in Russia. Despite the continued activity of domestic manufacturers, the share of foreign cars (including those produced in Russia) reached over 70% by 2010. Between 2011 and 2020, despite heavy tariffs on the import of foreign cars and government subsidies to support domestic automakers, only Lada maintained its position in the list of the top 10 best-selling cars in Russia. However, since 2022, following the imposition of sanctions against Russia, Western companies have exited this market. Iran's hopes and missed opportunities Iran announced in the summer of 2022 that it had the largest booth at the Moscow auto industry exhibition. The Minister of Industry and the head of Iran's Trade Development Organization, along with a delegation of representatives from 50 Iranian parts and car manufacturing companies, traveled to Russia to play a role in 'opening a bright page' of cooperation between Russia and Iran in this field. Iran Khodro claimed in 2023 that it intended to supply over 10,000 'Soren', 'Tara', and 'Dena' cars to the Russian market, and Saipa reported 'successful' negotiations with Russian distributors for the annual export of over 20,000 cars. Reza Mirkarimi, a board member of the Iran-Russia Chamber of Commerce, announced this spring that there is a plan to export 15,000 cars from Iran to Russia by the end of 2024. Meanwhile, the Russian Ministry of Industry and Trade announced in winter 2022 that due to the lack of safety certification for Iranian cars, their import to Russia was impossible. The company 'Best Motor', which became the official distributor of Saipa in Russia last spring, is in the process of dissolution, and reports indicate that Iran Khodro has sold only about 100 cars in Russia since the beginning of 2023. Many Russian experts have pointed out that the car market in Iran, which has long been under the influence of sanctions and mismanagement, is in a deplorable state, and they have described cooperation with Iran in this area as a matter of necessity and devoid of a positive outlook. Those who had previously purchased Iranian cars do not recommend others to go for 'old man cars'. Additionally, due to tariffs and taxes, Iranian-made cars are relatively expensive in Russia and cannot compete with Chinese cars. Customs and banking obstacles, inflation, and currency fluctuations in both Russia and Iran have also added to the problems. In this context, Iranian officials say that exports of car parts from Iran to Russia have grown by 450% over the past two years, with the value of these transactions reaching $66 million. New agreements in this regard were signed on the sidelines of the parts and accessories exhibition held in Moscow last week. A few months ago, the Russian section of Radio Free Europe/Radio Liberty reported that after the exit of Western automakers from the Russian market, Iran has become one of the main routes for smuggling Western cars into Russia. According to the latest estimates from Forbes magazine, three Chinese car manufacturers are listed among the 10 foreign companies active in Russia, with 'Chery' at the top. Chery's annual revenue in Russia quadrupled in 2023, reaching about 600 billion rubles, equivalent to about seven billion dollars. It has been reported that this company sold more than 220,000 vehicles of various types in the Russian market over the past year. 'Great Wall Motor' ranks fifth and 'Geely Automobile' ranks tenth. In total, 11 Chinese companies are listed among the 50 foreign companies active in Russia according to Forbes. The report noted that in 2023, the profits of these 50 companies from trade in Russia grew by 31% to about seven trillion rubles, with most of this income coming from increased sales of Chinese cars in this country. Trade between Russia and China has seen unprecedented growth during the years of Russia's war against Ukraine, surpassing $240 billion last year. In the same period, the volume of trade between Russia and Iran (excluding military transactions, which officials from both countries deny and are not included in official statistics) was about $4 billion, approximately $1 billion less than the previous year.