Great Wall is looking to establish a production facility in Russia, which is by far the brand's biggest marketplace outside China.
IHS Automotive perspective | |
Significance | Great Wall has issued a statement to the Hong Kong stock exchange regarding a plan to build a new vehicle production base in Tula Oblast, Russia. |
Implications | Great Wall has been expanding its international production footprint in recent years, establishing its first European assembly facility in Bulgaria in 2012. |
Outlook | Given the long-term potential of the Russian market and Great Wall's model portfolio of SUVs and pick-ups, which is a growth area in Russia, the move appears to make strategic sense. This is especially the case given that Russia is Great Wall's largest overseas market by far. |
Chinese automaker Great Wall has issued a notice to the Hong Kong Stock Exchange (HKSE) regarding its intentions to build a new plant in Tula Oblast in Russia. The statement issued on 19 May highlights that Great Wall plans to enter a "tripartite" agreement today (20 May) with the government of Tula Oblast and the Tula Oblast Public-Private Partnership Development Group in relation to a proposed wholly owned Great Wall subsidiary in Tula Oblast. Great Wall plans to form a vehicle production base with annual capacity to produce 150,000 units per annum (upa) at a 2.16-million-square-metre plot in the Uzlovaya Industrial Park in Tula Oblast. Great Wall aims to invest RUB12 billion (CNY2.1 billion) in the first phase of construction of the facility. The second phase of construction could bring total investment to RUB18 billion.
Outlook and implications
Great Wall has been one of the most proactive Chinese OEMs in terms of expanding its production footprint into overseas markets. Last month Great Wall was linked to plans to assemble sport utility vehicles (SUVs) in Malaysia (see Malaysia: 10 April 2014: Great Wall to assemble SUVs in Malaysia) following stalled plans for a facility in Thailand due to the political unrest in that country (see Thailand: 26 February 2014: Great Wall stalls plans for Thai plant). Great Wall opened its first production base in Europe in Bulgaria in 2012 and has started using that plant to enhance exports, with its H6 SUV entering the EU markets with the initial batch of 75 units shipped to Italy (see Bulgaria: 17 December 2013: Great Wall exports first SUVs from Bulgarian plant). Since Great Wall's Bulgarian plant opened in 2012, its output has mainly focused on supplying vehicles to the domestic Bulgarian market and neighbouring countries (see Bulgaria: 22 February 2012: Great Wall Opens First All-New Chinese-Owned Car Plant in EU). The OEM has also introduced the H6 to South Africa (see South Africa: 23 December 2013: Great Wall launches H6 SUV in South Africa).
Great Wall is keen to become a global player and has already given training to around 80 dealers across its target markets in order to properly prepare its dealership networks to ensure levels of customer service in new markets. However, Great Wall's plans are ambitious and its ability to expand into overseas markets will rest on providing a reliable, quality product at an affordable price. In recent weeks the automaker has pulled sales of its new, much anticipated, H8 SUV following a knocking sound (see China: 13 May 2013: Great Wall delays Haval H8 indefinitely). As Great Wall wants to go global, the automaker is currently taking critical comments against its products seriously enough to withdraw products until they achieve suitable quality and reliability standards. Over all Great Wall targets annual sales of 890,000 units this year (see China: 30 March 2014: Great Wall announces sales target of 890,000 for 2014). In terms of Great Wall's prospects in the Russian market the brand appears to have strong potential in Russia, if not least because of the company's bias towards SUVs and pick-ups with regards to its model line-up. SUVs are forecast to gain an increasing share of the Russian light-vehicle market between now and the end of the decade, having risen from 30 to 38% between 2009 and 2013. However, the principal factor for Great Wall establishing a production base in Russia is the fact that it is by far the company's largest overseas market. In 2013, Russian sales rose 29% y/y to just over 20,000 units, and it has obviously decided this represents enough critical mass to establish an assembly base there. However, it still sells a small proportion of its overall sales in foreign markets, despite its relative success in establishing itself in Russia. Great Wall sold over 500,000 units in China in 2013, while the firm's third best-selling market in 2013 after China and Russia, was Chile with just 7,000 units.