Soft scores: domestic car factories get lower grades
The Ministry of Industry and Trade intends to ease the requirements for the localization level of cars assembled in Russia. It is planned to reduce the "passing points" that affect the level of compensation paid to car factories for scrap, as well as provide access to a particular car model to participate in public procurement. Experts ambiguously assess this initiative. Details can be found in the Izvestia article.
Passing grade
The Ministry of Industry and Trade has developed draft amendments to a government decree providing for changes in the localization requirements for cars manufactured in our country. The document is posted on the federal portal of draft regulatory legal acts. It is assumed that the level of localization that automakers must achieve during the validity of special investment contracts concluded with the state (SPIC) will be reduced from the current 7 thousand to 5.5 thousand points.
According to the document, when concluding a SPIC or making changes to it, "proceed from the fact that at least 100% of wheeled vehicles are manufactured <...> technological operations (conditions) must be performed on the territory of the Russian Federation, collectively estimated at at least 5.5 thousand points," the text of the document says. We are talking about contracts concluded between January 1, 2020 and January 1, 2026 in respect of passenger cars, light commercial vehicles, trucks and buses.
According to Government Decree No. 719 of July 17, 2015, each technological operation earns a certain number of points to a particular car model. For example, body welding is rated at 400 points, painting at 500, stamping at least half (by weight) body parts, as well as the use of Russian metal in their production (at least 70% of the weight) bring 200 points each. The use of an electronic engine control unit manufactured in our country was estimated at 100 points, the Russian cylinder block at 95, and the engine assembly at 25 points.
Glasses for localization
Depending on the total number of localization points scored, one or another car model gets access to participate in public procurement and gets into the list of taxi models (3.2 thousand points for models with internal combustion engines and 1.1 thousand points for cars with electric motors), and also gets the right to participate in the state program of preferential car loans (1.6 thousand points) and etc.
The Russian automakers interviewed by Izvestia categorically refused to disclose information about localization points, citing trade secrets. Nevertheless, according to Za Rulem magazine, Lada Granta scored 5,284 localization points as of the end of May this year. In addition, as Andrey Reznikov, managing partner of the Evolute manufacturing company, previously told Izvestia, the localization level of the i-Pro model (assembled in the Lipetsk region) reaches 2050 points. These indicators do not yet reach the current standards of 7 thousand points, nor the planned target of 5.5 thousand localization points.
The Ministry of Industry and Trade explains the proposed revision of the localization indicators of the Russian automotive industry by "significant economic changes that have affected, among other things, the automotive industry."
— The most important factors were the consequences of the coronavirus infection, which provoked global disruptions in supply chains, a drop in demand due to economic restrictions, as well as unprecedented external sanctions pressure, which led to the withdrawal of foreign manufacturers from Russia from unfriendly countries. All these factors forced the industry to quickly adapt to the new realities. The Ministry of Industry and Trade of Russia, as a regulator, in turn, adjusts the previously formed approaches, taking into account these challenges, the press service of the ministry notes.
At the same time, the proposed adjustments do not mean a drastic easing of requirements in terms of solving localization problems, the Ministry of Industry and Trade emphasizes. The tasks are outlined, among other things, in the approved Strategy for the development of the automotive industry of the Russian Federation until 2035.
A forced measure
The level of 7 thousand points was relevant in a situation when more than 2 million cars were sold annually in our country and a significant part of them were produced by domestic car factories, said Igor Morzharetto, partner of the analytical agency Autostat. In conditions when the market, and after it, production is declining, reducing the "passing points" is a necessary measure, he believes.
— Deep localization with stamping, production of engines, transmissions and other components requires large production volumes. Otherwise, such a project will simply be unprofitable. It is justified when it comes to the production of hundreds of thousands of cars per year. But when production volumes are estimated at tens of thousands of cars annually at best, a full cycle with maximum localization is simply impractical from an economic point of view. That is why the government plans to lower the localization threshold so that models with even fewer points are considered Russian and enjoy certain preferences," Igor Morzharetto told Izvestia.
In the current conditions, domestic automakers cannot reach the current level of 7 thousand points, Maxim Kadakov, editor-in-chief of Za Rulem magazine, confirms.
— Reality has shown that the requirements have been overstated, and it is currently impossible to achieve them. Problems with components, some types of raw materials, as well as a number of technologies and even with the means of production cannot be solved simultaneously. Therefore, the step to reduce the requirements in the current situation looks quite logical," Maxim Kadakov believes.
Automotive industry, covid and meteorite
At the end of spring, representatives of FSUE NAMI demonstrated with examples that by the end of last year, the average localization level of the domestic automotive industry was 32.8%, compared with the stated figures of 55%, Anton Shaparin, Vice President of the National Automobile Union, recalled. This is caused not only by objective reasons, but also by an opaque scheme for awarding localization points, he reads.
— Serious sanctions pressure and the withdrawal of most foreign automakers from Russia have certainly affected the level of localization in the automotive industry. However, it is completely unclear what the coronavirus epidemic of five years ago has to do with this. With the same success, the meteorite fall in Chelyabinsk in 2013 can be blamed for the actual failure of localization of the domestic automotive industry. To a greater extent, this was influenced by a completely closed and opaque scheme for awarding localization points: no one knows exactly why a particular model received a certain number of these points," Anton Shaparin told Izvestia.
Reducing the "passing score" on localization is aimed at attracting new foreign partners to the Russian automotive industry, the expert believes. However, in order for investors to enter this industry, they need guarantees and confidence that their investments will pay off.
— In a situation where the rules of the game regarding taxes, recycling and other key working conditions in our market are constantly changing, and companies that already operate in the country suddenly find themselves "overboard", it will be problematic to attract new investors to the domestic automotive industry, — says Anton Shaparin. As an example, he cites a situation where the list of taxi models did not include a number of Russian-made versions.
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