How many LCV will be sold in 2025

The new LCV (vehicles with GVW of up to 6 tons inclusive, including pickups) market forecast* is based on three scenarios: baseline, optimistic and pessimistic.

According to all three forecast scenarios, the following factors have a negative impact on the Russian automotive market.

1.Sanctions (EU, USA and other countries). After February 24, 2022, economic sanctions were imposed against the Russian Federation, which also affected the automotive market. There is a ban on the export of LCV, electric cars, automotive components for manufacturers, spare parts, technologies and equipment to the Russian Federation. Nevertheless, the Russian automotive market has adapted to the new conditions: most of LCV supplied from countries that have announced sanctions against the Russian Federation have been replaced with Russian and Chinese ones. Moreover, a small amount of foreign LCV is supplied under alternative import. Based on global political trends, we assume that sanctions against the Russian Federation will remain in 2024-2025.

2.High loan and leasing interest rates. Since the beginning of 2024, there has been a gradual increase in the key rate of the Central Bank of the Russian Federation (see chart). The last increase in the key rate took place on October 25, 2024. The Central Bank of the Russian Federation raised the key rate to 21%. This rate is valid until December 19, 2024. On December 20, a meeting of the Board of Directors of the Bank of Russia will be held, which will consider the issue of the further level of the key rate. With the growth of the key rate, the loan and leasing interest rates increased, which made these financial instruments less affordable. The negative impact of high leasing and loan interest rates will continue until the end of 2024 and in 2025. Leasing and loan interest rates will depend on the key rate of the Central Bank of the Russian Federation, which may be increased after December 20, 2024.

With a high key rate, some private consumers may postpone their decision to purchase a new vehicle and deposit their funds, as deposits become more attractive for them. Some legal entities and individual entrepreneurs will not be able to purchase new LCV on credit or leasing based on their financial condition.

Change in the key rate of the Central Bank of the Russian Federation in 2024

Source: Central Bank of the Russian Federation

1.Tightening the auto lending conditions for individuals with a high debt burden. On July 1, 2024, the Central Bank of the Russian Federation established surcharges to the risk ratios for auto loans with a debt burden index (DBI) exceeding 50% of total monthly income. And beginning November 1, 2024, these surcharges have been significantly increased (see table).

Risk ratio surcharges for general-purpose consumer loans secured by vehicles

Source: Central Bank of the Russian Federation

Beginning July 1, 2024, it will be more difficult for private LCV buyers with a high debt burden to get a loan. At the same time, banks continue to lend to some borrowers with high DBI, increasing loan terms for them and thereby reducing the debt burden.In order to limit this possibility of circumventing restrictions, the Central Bank of the Russian Federation increased risk ratio surcharges for auto loans from November 1, 2024. In this regard, the auto loan conditions in the last 2 months of 2024 and in 2025 will become even tougher than in July-October 2024.

1.The growth of recycling tax and stricter conditions for certification of imported vehicles. Beginning April 1, 2024, the Government of the Russian Federation decided to include taxes and fees that were not paid due to underestimation of the customs value of vehicles imported into the Russian Federation from the EAEU countries into the recycling tax. On October 1, 2024, recycling tax rates significantly increased for all vehicle types, including LCV. On January 1, 2025, recycling tax rates will be indexed again. Given that Russian manufacturers that have signed the SPIC are compensated for the recycling tax costs in the form of industrial subsidies, its increase primarily has a negative impact on prices for imported vehicles, primarily those manufactured in China.

Since October 1, 2023, certification of vehicles of those brands that have not stopped official deliveries to Russia and are not included in the list of brands allowed for parallel import has been carried out under the Technical regulations "On the safety of wheeled vehicles". Vehicle Type Approval is issued for vehicles of these brands, previously it was possible to issue Conclusion on the Assessment of a Single Vehicle under a simplified procedure. Legal entities are required to install the ERA-GLONASS system when importing vehicles. These requirements will remain until the end of 2024.

Beginning 2025, it is planned to revise the mechanism for registration of Conclusion on the Assessment of a Single Vehicle and tighten the rules for vehicle certification not only for importers, but also for manufacturers. Instead of the simplified certification rules prescribed in Resolution No. 855, some requirements of the Technical regulations "On the safety of wheeled vehicles" may be returned. The relevant draft law is under consideration.

The growth of recycling tax and stricter conditions for certification of imported vehicles results in increase in LCV prices, which has a negative impact on the market.

2.Release of pent-up demand. Some consumers (individuals) have satisfied their need in new LCV in 2024, and will not purchase new vehicles in 2025. The pent-up demand of corporate customers in new LCV was also partially satisfied in 2024, and they will not intensively renew and expand their fleets in 2025.

3.Tax reform in 2025. In 2025, tax reform will be carried out in the Russian Federation and the tax burden on companies and individual entrepreneurs will increase. It will lead to a further increase in prices for vehicles, spare parts, service, etc.

Moreover, on January 1, 2025, excise taxes on automotive fuel will be indexed, which will also have a negative impact on total cost of LCV ownership.

Against the background of the growing tax burden, high auto loan rates and rising prices, private consumers will postpone their decision to purchase vehicles. Corporate clients will have reduced financial capacity to renew their LCV fleets. Nevertheless, there are factors that make it possible to smooth out the negative trends in the new LCV market in 2024-2025.

1. State support measures for the LCV market.

In 2024, state support measures are in place for the market of LCV running on traditional fuel and electric LCV. First of all, these are preferential auto loan programs (cars and LCV, including electric cars), for which 23.83 billion rubles were allocated in 2024, and 23.1 billion rubles will be allocated in 2025.

17 billion rubles were allocated for preferential leasing programs in 2024 (tractor units, unmanned trucks, buses, minibuses, and electric cars). In 2025, the preferential leasing programs will continue with a budget of 11 billion rubles (for all types of vehicles that will fall under the program).

In 2024, LCV will be subject to procurement under the program for converting vehicles to natural gas fuel under Decree of the Government of the Russian Federation No. 669 dated 05/13/2020, but the expected volumes of such procurement have not been officially published. LCV procurement is also planned as part of the School Bus program. 10 billion rubles were allocated for the purchase of school buses in 2024. With this money, it is planned to purchase at least 3,000 school buses by the end of 2024 by the end of 2024 (minibuses and buses of various classes).

2. Loan programs from manufacturers. Against the background of the key rate increase, manufacturers are developing and offering their loan programs to consumers at more attractive interest rates than standard rates from banks. Consumers can take advantage of these offers and purchase the vehicle on more favorable terms.

3. Development of e-commerce and e-trading. Over the first nine months of 2024, the volume of e-trading increased by 43% on the similar period last year and amounted to 6.2 trillion rubles.^[1] Growth is also projected by the end of 2024. In 2024-2025, the development of e-commerce and the growing demand for small delivery vehicles from marketplaces and transport companies serving them will become an incentive for the development of the new LCV market.

4. Return of LADA Largus vehicles to the LCV market. In 2024, LADA Largus returned to the LCV market. In 2024, sales of LADA Largus light commercial vehicles will not be as high as before. In 2025, sales of LADA Largus vehicles can be expected to grow on 2024.

5. Standard LCV replacement cycles. In 2024 and 2025, old, worn-out and broken down vehicles will be retired from the fleets of private and corporate vehicle owners and replaced with new ones.

6. Panic consumer expectations. In anticipation of rising prices for LCV, a possible increase in loan and leasing interest rates, and a possible depreciation of the ruble, some corporate and private consumers will purchase LCV at the current time so as not to overpay for them in the future.

This behavior of some consumers will remain until the end of 2024 and in 2025 and will continue until the situation with prices, loan and leasing interest rates, and inflation stabilizes.

According to all forecast scenarios, Russian and Chinese brands will dominate in the Russian LCV market in 2024-2025. New vehicles imported under parallel import and those of foreign brands manufactured on the territory of the People's Republic of China and "friendly" countries to the Russian Federation will also be sold.

The baseline forecast scenario assumes the following:

2024

- the key rate of the Central Bank of the Russian Federation may be increased by 1-2 percentage points after December 20, 2024, which will lead to a further increase in the cost of loans and leasing,

- the macroeconomic situation in Russia will remain difficult. GDP in 2024 may grow by 3.0% on 2023, inflation will be 8.2%.

2025

- the key rate of the Central Bank of the Russian Federation in 2025 will remain at the level of December 2024, lending and leasing of trucks will remain expensive,

- the macroeconomic situation in Russia will remain difficult. GDP in 2025 may grow by 1.6% on 2024, inflation will be 5.0%.

The optimistic forecast scenario assumes the following:

2024

- the key rate of the Central Bank of the Russian Federation will remain at the level of 21% after December 20, 2024 and there will be no significant increase in the cost of lending and leasing,

- the macroeconomic situation in Russia will remain difficult. GDP in 2024 may grow by 3.3% on 2023, inflation will be 8.0%.

2025

- the key rate of the Central Bank of the Russian Federation may decrease by several percentage points in 2025, lending and leasing of vehicles will become more affordable,

- the macroeconomic situation in Russia will remain difficult. GDP in 2025 may grow by 1.9% on 2024, inflation will be 4.5%.

The pessimistic forecast scenario assumes the following:

2024

- the key rate of the Central Bank of the Russian Federation may be increased by more than 2 percentage points after December 20, 2024, which will lead to a further increase in the cost of loans and leasing of trucks,

- the macroeconomic situation in Russia will remain difficult. GDP in 2024 may grow by 2.8% on 2023, inflation will be 8.5%.

2025

- the key rate of the Central Bank of the Russian Federation will continue to grow in 2025, therefore, loan and leasing interest rates will increase,

- the macroeconomic situation in Russia will remain difficult. GDP in 2025 may grow by 1.4% on 2024, inflation will be 6.2%.

New LCV sales forecast for 2024-2025