Company quick overview

The group AvtoVAZ is the largest light vehicles manufacturer and seller in Russia. Its activities cover manufacturing, insurance and financial services, energy generation and storage, after sales service and accessories retail.

Ownership

The group AvtoVAZ is controlled mainly by Renault-Nissan, in partnership with the Russian state corporation Rostec. The shares are split as follows:

  • 64.6% : Alliance Rostec Auto B. V. (82.45% belongs to Renault, the rest to the state corporation Rostec)
  • 24.09% : Renaissance Securities limited

Production

Two plants

AvtoVAZ has 2 main production facilities (Togliatti and Izhevsk).

The plant in Togliatti is the largest of all 46 Renault-Nissan’s plants with the
capacity for a full cycle production of about 1 mln cars per year.

The plant in Togliatti is the largest of all 46 Renault-Nissan alliance’s plants with an area of 2000sq km. It has the capacity for a full cycle production under four brands: LADA, Renault, Nissan and Datsun and about 1 mln cars per year.

In Togliatti, there are 3 assembly lines and a few lines for powertrain and components.

In Izhevsk, there are several component production lines and one assembly line.

As in many Russian companies, the production is highly verticalized and includes the following:

  • Metal forging and stamping
  • Plastic stamping and pressing
  • Welding
  • Engine and gear boxes production
  • Chassis and painting
  • Assembly lines

Current production

Overall, AvtoVAZ has a production capacity close to a million cars per year. In 2012, the group intended to use it as much as possible, raising high hopes among suppliers.

According to official statements though, Renault had sold 266’315 cars in 2016, including KDs and sold 311’588 cars in 2017.

Currently, 7 models are produced (fig. 1), all according to EURO 5 standards except for exported cars, which are brought up to EURO 6 standards.

Future developments

AvtoVAZ launched this year a Monozukuri plan to strengthen relationships with suppliers and co-develop new products and processes as the group wants to launch 5 new models by 2022.

For 2018, the group announced to suppliers its ambition to produce more than 500’000 cars. Shifts will be increased progressively starting in May. Their production strategy features the following:

  • Strong trend towards localization of foreign producers in Russia
  • Manufacturing performance at Alliance level: suppliers failing to comply will be excluded from the system
  • Headcount optimization thanks to the industrial park

In terms of sales, AvtoVAZ wants to keep a 20% market share of the Russian market, which is expected to fully recover and further grow in 2020 and beyond. Parallelly, the group aims at significantly increase its exports to CIS and other countries. Their image has been improving among the public and export activities are subsidized by the government. Between 2016 and 2017, they almost doubled their export (24’955 units in 2017).

Problems and delays

As the management announced at the quarterly meeting held in Togliatti late February, AvtoVAZ is facing a lot of difficulties working with the local automotive suppliers.

In February 2018, up to 5000 cars were uncompleted and stored due to late deliveries and quality problems.

There are problems at all levels: inadequate quality, systematic late deliveries, communication issues, cost pressure, payment problems, bribery… In February 2018, up to 5000 cars were uncompleted and stored due to late deliveries and quality problems.

As production volumes keep increasing and new models are being discussed, AvtoVAZ is actively looking for alternative sourcing to settle these problems and bring profitability to the group. Though they want to maintain a 50% share of Russian suppliers, this situation opens up opportunities for Swiss and European automotive suppliers, who should rush in and either:

  • Carry out direct exports to AvtoVAZ or
  • Set up joint ventures with existing Russian Suppliers to co-produce new products or raise production standards and optimize processes

Sales

Historically, Lada was positioned as a low-cost brand. As part of the new strategy set up by Bo Andersson, the former CEO, the company launched in 2015 two new Lada models in a higher price segment: the X-Ray crossover and the Vesta Sedan.

The total sales went up 17% in 2017, which is above market growth (about 12%).

This move was successful as total sales went up 17% in 2017, which is above the market growth (about 12%) and shows that of AvtoVAZ is in a much better shape. The group went from an average sales price of 250’000 rubles to 550’000 rubles. Vesta became the second bestselling model of Lada’s cars and among top five in the market.

As in the figure 2, 6 out of the 7 models of LADA entered the TOP-25 of most sold cars in Russia in 2017. Priora and Kalina are the „people’s choice“ and bring a steady income for the company, though they are among the cheapest models on the market.

Lada Granta, another bestseller, is also regularly in the TOP-3 of the most sold cars in Russia (93’686 units sold in 2017). The Lada Largus shows the best growth rates three years in a row in the LCV segment (+15% in 2017) and was named car of the year for the fifth time.

Financials

AvtoVAZ has been going through a tough financial situation and did not generate any profit since 2014. The results in 2017 are encouraging though: the increase by 22% to 225.6 bln rubles, which is higher than in 2014. The group’s operating margin reached 0.7% and a net loss of −4.3% was registered. This is a substantial improvement compared to previous years and was achieved mainly thanks to the profitability of the new X-RAY and Vesta models, a higher efficiency in production, as well as cuts in general, consulting and administration expenses.

History

Italian partnership with FIAT

The construction process of formerly known as VAZ (Volzhskiy Avtomobilniy Zavod) began in 1966 and was founded by State economic planners of USSR. The first production line was commissioned in 1970 three years after signing an agreement with the Italian manufacturer Fiat. After the local dam burst that flooded the historic settlement, a new city was built around the plant. The city was named Togliatti after Palmiro Togliatti, an Italian communist party leader.

Post-Soviet Era

During the privatization era AvtoVAZ was faced with new challenges as it was not ready to compete with international manufacturers in an open market economy due to the inefficiency of the production lines and high production costs. In order to raise funds, they tried to turn the company in a publicly owned one. However, they have failed because of common local practices; most of the shares were bought from workers that were financially incompetent. This was the reasoning behind AvtoVAZ seeking the foreign investment.

Partnership with GM

The first to create a joint venture in the Russian automotive market was General Motors when they signed a joint venture worth $332 million. Today the joint venture is performing well with a production line that still manufactures the Chevrolet-Niva model and has plans to build a new production line for the Chevi-Niva 2 model.

Renault-Nissan Group era

In 2008, just before the global economic crisis, Renault-Nissan group discussed with Rostec, a blocking shareholder of AvtoVAZ, about creating a joint venture. The deal was concluded, and the French group invested a billion dollars. Then the French management from Renault-Nissan-Mitsubishi group put AvtoVAZ back on track to its real production capacity.