Investor patience may have worn thin with Great Wall’s stalled delivery of its H8 SUV but this week the company offered a morale booster. Great Wall Motors (02333.HK, 601633.CN) said in an exchange filing Tuesday that it has signed a deal with the western Russian administrative region of Tula Oblast to build a major SUV plant there.
The new plant, to be up and running by 2017, will make Great Wall’s hit SUV marques like the H9 and H2 as well as the ill-fated H8, with an annual output of 150,000 units. Covering 2.16 million square meters, the plant’s initial investment is set at 12 billion rubles (US$340 million) with a second installment of 18 billion rubles.
Although still a frontrunner, Great Wall has run up against thinning margins as domestic competition has intensified. A convoy of SUV models — more than 20 in total — debuted at this year’s Beijing Auto Expo, but China Association of Automobile Manufacturers figures show that SUV sales during the first four months to April increased by just 37 percent, down 13 percent points from the level a year earlier.
Great Wall could diversify its business by expanding overseas and going off-road. But, why Russia?
The reason is that Chinese carmakers are doing well in the country, where tens of millions of members of the middle class and first-time buyers are looking for cost-effective models. More importantly, they have nothing against Chinese brands. Last year Great Wall sold 19,954 SUVs there, up 39 percent year on year.
Already, Great Wall has a solid footing in the country. It runs a knockdown kit factory in a suburb of Moscow through its Russian partner and dealer.
Tula Oblast sits on the doorstep of Eastern Europe with easy access to Belarus, Ukraine, Poland and Romania — just to name a few markets. When Great Wall steers in that direction, the new plant could help it get some real traction.
– Contact the writer at [email protected]