What are the goals of Azerbaijan, Uzbekistan car industry cooperation? Review by Caliber.Az

The consequences of the downturn witnessed in the automobile industry in 2021-2022 are gradually pulling through. Thus, in the EU market most affected by the crisis, car sales jumped by almost 30 per cent in March. The assembly and sales of passenger cars are rapidly progressing in the countries of Central Asia, as well as in Azerbaijan, where, in particular, a 2.1-fold increase in production was recorded and imports of vehicles increased by over 86 per cent.  

At the same time, the integration of the automobile industry of Uzbekistan and Azerbaijan is expanding, forming the "Turkic conglomerate of the automobile industry" together with Kazakhstan. The next step in this direction was the laying of the foundation of a new joint car assembly plant, which took place in the Hajigabul industrial district on May 1.

The post-pandemic period in most countries of the world saw a rise in car prices. Experts attributed this to the factor of imported inflation caused by the colossal infusions of unsecured liquidity into the US and EU economies in 2020-2021.

In turn, the automobile industry was under intense pressure due to the shortage of semiconductor components and electrical equipment; the rise in the price of rolled steel, polymer knots and other components.

On the other hand, the regime of Western sanctions not only shut down a large part of the assembly lines in Russia, but also increased the cost of production in Japan, Korea, China, and the countries of Southeast Asia due to the intensification of the energy crisis, further amplifying the disintegration of the global industry.

Nevertheless, by the end of 2022 and the start of 2023, the inertial processes that impeded the development of the global automobile industry began to gradually soften: the price of the raw energy materials, rolled products and microcircuits went down, and simultaneously, the factor of pent-up demand also played its role, including in the European markets most affected by the decline in production.

Thus, according to the results of March 2023, about 1,088,000 units of new cars were sold in the EU countries, while sales increased by 28.8 per cent in annual terms. In general, 2,651,000 new cars were sold in Europe with an increase of 17.9 per cent, with the Spanish car market showing the highest rates, which increased by 44.5 per cent, according to the results of the first quarter of 2023.

Key trends in the car market developed in different directions in the post-Soviet space. For example, in sanctioned Russia, due to the departure of Western companies, production has been declining for the second year in a row, and the sales of passenger cars decreased by 45 per cent in January-March 2023.

On the contrary, Uzbekistan and Kazakhstan witness steady trends in the growth of production at assembly facilities. Particularly, 328,118 cars were produced in Uzbekistan in 2022, a slight increase was also observed in 2023. In terms of car production, this Central Asian state currently occupies a leading position in the CIS.

Despite the incomparable scale of the markets, Azerbaijan has also shown positive dynamics this year. This way, according to the State Statistics Committee, 925 cars were produced in the country in the first quarter of 2023, which is 2.1 times more than the corresponding period in the previous year.

Production growth was ensured by the revival of the local market, supported, among other things, by significant volumes of orders for passenger cars from various government agencies.

In general, the demand for personal vehicles in Azerbaijan is steadily high, as evidenced by import statistics - in January-March 2023, 19,264 cars with a total value of over $277,700,000 were imported into the country, which is 86.8 per cent more than the previous year in monetary terms.

In short, after two years of difficulties, the Azerbaijani car market is on the rise, and judging by the plans for cooperation with Central Asian states, these positive trends will acquire a long-term and sustainable character. In this regard, it should be recalled that since 2022, Baku, Tashkent and Astana are making efforts to form a "Turkic conglomerate of the automobile industry" and to this end, the Uzbek UzAuto Motors, Azerbaijani Azermash and Kazakh Saryarka Autoprom LLP have agreed to strengthen cooperation to assemble Chevrolet cars from Uzbek components.

In the future, the participation of the countries in the conglomerate will help to pursue a balanced pricing policy, strengthen horizontal ties in the field of mechanical engineering of the three countries, and expand the localization of production.

The most important step in this direction was the ceremony of laying the foundation stone of the new automobile plant in the Hajigabul industrial district on May 1.

"Azerbaijan and Uzbekistan have agreed to expand cooperation in the production of motor vehicles, in connection with which Economic Zones Development Agency, Machinery and Equipment Manufacturers Association and UzAvtoSanoat JSC signed a memorandum of cooperation to expand the production of motor vehicles in Azerbaijan," Economy Minister Mikayil Jabbarov wrote on his Twitter page on May 1.

The joint venture for car production, which is being constructed by Azerbaijan’s Azermash CP company in cooperation with Uzbek JSC UzAvtoSanoat, will be located on the territory of 16 hectares. Its rated capacity is designed for the production of 30,000 cars a year.

Investments in the construction of the plant are estimated at AZN 88,000,000 ($51,764,705) and instead of large-knot "screwdriver" assembly the new enterprise will carry out an assembly of a vaster scale including body welding and painting of cars. For this purpose, the plant will use the advanced technologies of the USA, Italy, China, South Korea and Uzbekistan.

The enterprise is planned to be launched in May 2025, with plans to set up production of such Chevrolet car models as Cobalt, Malibu, Tracker and Equinox. Upon meeting the designated capacity of the plant, it is planned to provide permanent jobs to 1,200 people.

"Cars of the new joint venture in the Hajigabul industrial quarter will be sold not only in the domestic market but will also be exported," Deputy Economy Minister Sahib Mammadov said during the groundbreaking ceremony.

To recall, cooperation between Baku and Tashkent in the automobile industry started on September 17, 2021, after the SamAvto LLC joint venture, created by the Uzbek company UzAuto Motors and the Azerbaijani Azermash OJSC, launched an LLC assembly production of Chevrolet cars in Hajigabul, where the Chevrolet Nexia, Chevrolet Cobalt models have been assembled for a second consecutive year.

From the start of production until the beginning of March 2023, the plant produced about 2,700 such vehicles. Also, at the beginning of this year, the participants of the joint venture voiced the prospects for bringing the production to the level of about five thousand cars a year due to the transition from large-component assembly to a full production cycle, which includes the localization of the assembly of automobile components, such as dashboards, exhaust systems, chassis components, etc.

“At the next, third stage of the joint automobile production, it is also expected to establish the production of spare parts in Azerbaijan,” Chairman of Machinery and Equipment Manufacturers Association Emin Akhundov said at the ceremony.

With time, the production of materials and components required for car assembly (for example, using steel and aluminium rolled products, copper cables, polymers, plastics, and chemical fibres) can be established in Azerbaijan and Kazakhstan, where the corresponding petrochemical and metallurgy industries are developed. This will significantly reduce the cost of production, and over time, locally assembled Chevrolet models will be able to occupy the niche of high-quality foreign cars, becoming a mass and affordable alternative to used cars and inexpensive Chinese products.

The latter factor is significant, especially considering that the decision of the Cabinet of Ministers dated March 29 restricted the import of over decade-old cars into Azerbaijani territory (this decision entered into force on April 29, 2023).

Recall that the age of about 80 per cent of cars available in Azerbaijan exceeds 10 years and the recent decision of the Cabinet will have a positive impact on the renewal of the car market, and foster the import of newer environmentally friendly.

At the same time, the market participants claim that used over 10 years old vehicles sold at local auto markets have already risen in price by 5-10 per cent. This growth is likely to continue, as companies engaged in road transportation from the Georgian port of Poti to Azerbaijan have increased prices by about 50 per cent. Thus, taking into account the rise in prices for second-hand automobiles, Chevrolet of local assembly will soon increase the chances of expanding the market sales share.