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Volkswagen Group lays foundation stone for new engine plant in Russia; part of $1.1B investment in Russia over next three years

The Volkswagen Group laid the foundation stone for its new engine plant next to the Volkswagen vehicle plant at Kaluga. The plant is designed for an annual capacity of 150,000 units. The engine to be produced at Kaluga in the future will be a 1.6-liter gasoline engine from the EA 211 series, representing Volkswagen’s most modern engine technology. The start of production is scheduled for the beginning of 2015.

From 2015, the Group will supply its vehicle assembly plant at Kaluga and contract production at the GAZ plant in Nizhny Novgorod with the locally produced engines.

The Volkswagen Group is the largest foreign automobile investor in Russia. Since 2006, the Group has invested about €1 billion (US$1.3 billion) in local production and new models for Russia. A week ago, the Group announced that it would be investing a further €840 million (US$1.1 billion) in Russia over the next three years. Of this amount, the construction of the new engine plant will account for about €250 million (US$325 million).

Volkswagen has been producing vehicles for the Russian market at the Kaluga plant since November 2007. Currently, four models are produced here: the Volkswagen Tiguan and Polo as well as the ŠKODA Octavia and Fabia. Last Thursday, contract production of the ŠKODA Yeti started at the Nizhny Novgorod plant of the Group’s partner GAZ. Local component production at the new engine plant is due to follow from 2015.

The planned scope of production includes cylinder blocks, cylinder heads with integrated assembly, crankshafts and the assembly of complete engines. The Group also plans to build a logistics center near Moscow.

With the new engine plant, Volkswagen will ensure that at least 30% of the vehicles produced in Russia are equipped with locally manufactured engines by 2016. In doing so, the Group will be meeting the targets set in the additional agreement to Decree 166 signed with the Russian government at the end of May 2011.

The maximum annual capacity at the Kaluga plant is currently 225,000 vehicles. The Group will probably produce about 175,000 vehicles there this year (2011: 135,000). Future annual capacity at Nizhny Novgorod, in the first stage of development, will be about 110,000 vehicles. Production is due to start there next year.

For the Volkswagen Group, Russia is currently its sixth-largest individual market, after China, Germany, Brazil, the USA and Great Britain. In 2012, the Group will deliver more than 315,000 vehicles to Russian customers, corresponding to growth of 38% compared with the previous year. More than half of these vehicles already come from local production. In the long term, the Volkswagen Group plans to sell 500,000 vehicles per year in Russia by 2018.



The ruble is too strong because of gas and oil exports so usually it's not worth manufacturing anything in Russia, nevermind exporting it. This looks like a pure government-Volkswagen deal, not a direct business decision. Maybe they also got some cheap loans or something?

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