National brand of Kazakhstan can be represented by electric car

3rd forum of car manufacturers of Kazakhstan was held in Astana on 1-2 October. Chairman of the Board of Directors and Shareholder of JSC “Allur Group of Companies”, Andrey Lavrentiev, shared his thoughts on Kazakhstan’s automotive industry prospects

Photo by Andrey Lunin
Andrey Lavrentiev.

How would you assess the development of the automotive market in Kazakhstan in the current situation? What impact do macroeconomic and geopolitical factors have?

At its best, the market size amounted to around 250-300 thousand cars a year, whereas it was only 200 thousand cars during more pessimistic times. Despite the  fact that quantity-wise the car market stays on around the same level, its price segments are changing, i.e. people are buying cheaper cars. Now the main question arises: what influences the market? The market is influenced by a few key factors, one of which is GDP growth. We do know for a fact that the economy is going to expand, even by the smallest amount this year. We understand that the market size would be around 220-250 thousand cars this year. Based on this number we  deduct the “premium” segment, which amounts to approximately 35 thousand cars. This segment is not the target for numerous Kazakhstani manufacturers and official dealers. Hence, there are only 190-215 thousand cars left to the dealers and manufacturers. However, staggering amount of 100 thousand has been already, imported from Russia as a result of price disparity due to the ruble devaluation. Eventually, we, official dealers, are left with market of about 95-115 thousand cars.

After forecasting market sales, we estimate our retail inventory remainders and estimate the quantity that we can bring in to meet the demand of 110 thousand cars. Despite the existing market volatility, we understand that we can provide the market with required volumes.

So what can stimulate the market? The answer is state programs and availability of financing. Car volumes purchased on credit are increasing, but the interest rates on car loans are increasing as well. Banks like Eurasian Bank, Kaspi Bank and Tsesna bank are still financing automobile purchases, and some new players including Kazkom, Bank Pozitiv, Halyk Bank, ATF Bank and Bank CenterCredit are entering the market. Obviously banks seeare realizing the perspectives of car loans market, but the issue with tenge liquidity which has brought to the shortage of  car loan volumes is still left unsolved.

The next step is to review the market in terms of current manufacturers and automobile importers.

What lessons you have extracted from 2014?

The biggest threat is not coming from the market, but rather from the factors that do not depend on us: devaluation, open borders, technical regulations. These factors could “break” our market. I have learned one lesson – you always have to keep up with situation and analyse every decision you take. From now on we will conduct more researches and calculations, wewill improve analytical unit of AKAB to control and understand how certain decisions made on the EEU level could affect the automotive industry.

In your opinion, what would happen with our automotive industry after WTO accession?

WTO accession is a serious matter and we are preparing for it. We know, that customs duties will decrease gradually, which, beyond all doubt, would give the market players time to adapt to competition and new market conditions.

Andrey, how do you assess the possibility of national brand creation?

In my opinion, it is the only right way for domestic automotive industry development.

Foreign brand cars’ manufacturing is the stage, required to obtain new experience, competence, development and connections. Although there is always a huge risk for us if brand policy changes which is not under local partners’ control. This means the car manufacturing plant can become useless.

Creating national brand should become main goal of local carmakers, with the aid of all previous stages. For instance, national brand can be based on electric cars production.This is a know-how which meets requirements of the modern world and is a solution for ecological issues. 

Lithium battery is a fundamental component of an electric car. Singaporean scientists almost reduced the battery charge time to only 10 minutes. This becomes a solution for a long battery charge issue: a driver cannot wait for 40 minutes to charge a battery. When humanity will be able to charge a vehicle for 75% in 10 minutes and less, automotive industry will make a huge step forward.

This is why creation of Kazakhstani national brand should involve a shift from fuel production straight to innovations. Therefore creation of electric cars should take into account the newest technologies available.

When Elon Musk created the first Tesla car, whole world was laughing at him, saying that it was impossible. However, BYD company first invented the main component of an electric engine – battery, and only then constructed a car. By the way, traditional automotive engineers did not take part in electric car construction. In other words, these cars were grown in test tubes, like stem cells.

Nowadays, companies that are not prepared for risk and innovations are doomed. This is why Kazakhstani brand creation with new technologies implementations is not a dream, but an opportunity, which we have to use for a qualitative breakthrough.

Kazakhstani manufacturers are not yet ready for an independent production of electric cars, but we have our strategic partners from China and the USA, who are willing to invest in new markets, new opportunities and new people. Such projects are more likely to succeed in Kazakhstan, rather than in the USA or Europe with dominating conservative MNCs.

What do you need for it?

We need a provision of governmental support measures on this issue, which involves not only financial support, but also systematic support measures, which are required for industry establishment. We have support of our government and the President. If required regulatory environment will be established from the Government’s side, half of the job will be done. Our people, who are working at assembly lines, will meet with electric car producers. We have to analyze the world’s engineering potential, attract the best specialists and, in collaboration with our strategic partners, we need to start creating our own automobile.

Will the national brand be popular?

Popularity is formed from the market demand. Product’s competitive advantage, high demand and comfortability are main determinants of its popularity.

Enforced national brand creation is impossible. The created automobile should be technologically advanced, comfortable and attainable. Kazakhstan has everything for a new brand creation – preferences, plants, competencies, money, willingness and government policies.

Will the maintenance of such cars be expensive? Or the national brand should promote attainability in everything, including maintenance?

What is the difference between an electric car and the traditional one? The only difference is the electric engine. It is a simple thing, which does not require any systematic exploitation measures. In terms of exploitation, electric cars are much simpler – they do not require oil change, they do not have plugs, fuel injection, gasoline tank, or anything that can easily be broken. A car has many details with various useful lives, and a car’s fault-tolerance depends on the number of such small details. Hence increase in batteries’ useful lives, charging capacity, decrease in charging time of lithium batteries will boost up electric automobile industry development.

In your opinion, what innovations does the banking system need, in order to help the automotive industry expand further?

Numerous foreign banks prefer to work on a collateral-free basis, and instead they consider the cash flows, as they use a different international system of risk assessment. Perhaps, local commercial banks need to review their lending system. If bank still require collateral, it have to be more flexible in terms of taking collateral, for instance, stock-in-trade, contracts, guarantees, securities and other assets, as the financing and funding issue for automotive companies is very important. We really need accessible funds.

How would you assess the current condition of the commercial vehicles market and what will happen with it in the future?

The market for commercial vehicles in Kazakhstan is only at its start. In my opinion, there is a positive outlook for this market. There have not been any significant investments into the commercial segment. Besides, the market is not saturated and the number of competing brands is not high. This business appears to be highly profitable. Therefore, I think that the market for commercial vehicles is one of the most ambitious ones. There are numerous approaches, including financial and operational leasing, give-and-take schemes, which we could use. This market is underestimated and appears to be one of the most interesting ones. Personally, I see good opportunities in it, because this appears to be the priority direction in the development of our company.

What important question would you ask the government?

I have already got an answer for the most important question – the country does need the automotive industry. There are a few confirmations for that – SPAIID 2, for which the automotive industry is one of the priority industries, projects for the industry support, state programme for preferential auto lending at 7.5%. Not only did we get an answer – we got the confirmation.

We see the success of industrialization of our country. Automotive industry is the industry for innovations, which is needed for that “multiplier effect”. It is the industry, apart from oil and gas, which returns USD 4 in taxes on every USD invested. It is a very low-margin and financially intensive business, but what we do now to develop localization, servicing and retailing, is, indisputably important for the development of our country.

Thank you for the interview!

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Advisory Director, PricewaterhouseCoopers Tax & Advisory LLP

 

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