BYD electric car in Tashkent, Uzbekistan 

UzAutoMotors (UZMT) dominates Uzbekistan's automotive industry, manufacturing over 90% of the country's vehicles since its inception in 2008. However, recent developments pose significant challenges. In November 2023, Uzbekistan imported 83,800 vehicles from China, highlighting intense competition. New players like BYD and ADM Jizzakh further intensify the landscape. Moreover, UZMT faces risks like the expiration of its cooperation agreement with General Motors in 2027 and the shift towards Electric Vehicle production, Alkes Research reported.

Price history and target price rating for UzAutoMotor. Car price in Uzbekistan.

Infographics: Sabina Aliyeva

The pie chart shows the information about the closing prices of UzAutoMotors' shares on the stock exchange over the year. Click on the infographics for more details.

Emergence of new competitors. Car price in Uzbekistan

The entry of new players in the industry further intensifies competition for UZMT. Notably, BYD launched a new factory in the Jizzakh region in March 2023. Additionally, ADM Jizzakh, an auto manufacturing plant and official distributor of several car brands including Renault, Cherry, Haval, Hyundai, and KIA, has been operating since November 2020.

These new competitors pose a challenge to UZMT, particularly in the premium segment where demand for their higher-priced models is being eroded by substitute models from competing brands.

Impact of international trade policies and imports from China

Uzbekistan's recent trade policies, particularly with neighbouring countries such as the People's Republic of China, have facilitated increased imports of cars. The Chinese car manufacturing industry, already at its peak, has presented intense competition for UZMT. In 11M 2023, Uzbekistan imported nearly 84,000 passenger cars from China, valued at $1.5 bn. This influx of imported cars has created additional pressure on UZMT's market share.

Despite the challenges posed by growing competition, it is important to note that UZMT has been operating in Uzbekistan for a longer period than its current competitors. This longevity provides an opportunity for UZMT to review and potentially redefine its strategy to maintain its market share leadership.

Key potential risks assigned to investment case

• Cooperation agreement with General Motors, US

The Uzavtosanoat's cooperation agreement with General Motors, US, is set to expire in 2027. If it terminates, UZMT may face restructuring, impacting core operations and profitability. Loss of intangible assets and supplier support from General Motors poses a significant concern for UZMT's future viability.

• Impact of legal cases on company reputation

Legal cases filed against UZMT have affected its reputation and product perception. Negative consumer reviews and the potential for further legal action contribute to reputational risks.

• Shift towards Electric Vehicle (EV) production

The rise of EVs may redirect government investments away from UZMT's internal combustion engine car models, potentially diminishing prospects for their recent and upcoming car models.

• Vulnerability to multinational competition and WTO membership

Dependence on GM South Korea as a major supplier exposes UZMT to foreign exchange rate fluctuations. WTO membership and increased competition could impact UZMT's profitability and market position.

Climate change impacts and concerns for energy security in Uzbekistan's automotive industry

The growth and evolution of UZMT and Uzbekistan's automotive industry show promise, driven by the government's dedication to the sector. However, ensuring sufficient and sustainable transportation energy is crucial for meeting the expectations of the country's growing population.

As of June 2022, the most popular vehicle fuel in Uzbekistan was methane, accounting for 65% of usage. Gasoline, liquefied petroleum gas, and diesel fuel followed with shares of 24.4%, over 8%, and 2.2%, respectively. While traditional gasoline usage has not been heavily relied upon, concerns remain regarding the sustainability of available fuel sources for vehicles.

Impact on UZMT and customer behavior

The reliance on internal combustion engines in UZMT's manufactured vehicles raises concerns about the demand for gasoline-run motor vehicles. However, customers have offset this by using affordable methane as an alternative fuel, reducing the financial burden. Approximately 65% of vehicles in Uzbekistan utilize methane as a cost-effective fuel source.

Energy security concerns pose a potential risk and liability for UZMT, particularly in terms of future regulatory requirements. While the company has not introduced car models running on alternative energy sources, there are prospects for the production of medium and long-term electric vehicles, as mentioned on the company's development strategy webpage.

UZMT lags behind competitors such as the Chinese brand BYD, which has already introduced electric vehicles. This has raised concerns about market share loss and a shift towards the BYD ecosystem. The reluctance of customers to bear the financial burden of gasoline vehicles and the price-efficiency discrepancy between gasoline and electric vehicles contribute to this trend.

State's role as the controlling shareholder and implications for UZMT

Despite the recent IPO, the State government remains the significant controlling shareholder of UZMT, indicating its perception of the company as "too big to fail" and strategically important. In the event of potential bankruptcy, the central government would likely provide a bailout, ensuring the State's influence over the long-term operations of UZMT.

Principal-agent dynamics and minority shareholders

With the State holding majority shares, there is a minimal likelihood of principal-agent conflicts. However, a gap in the discount for lack of control exists, deterring rational retail and institutional investors. The assumption that the State would address significant disruptions mitigates systematic risks but depresses the fair value per share.

UZMT holds strategic significance, employing approximately 12,000 people and collaborating with over 100 supplier companies. It ranks among the top 10 taxpayers, contributing around $120 mn in taxes to the state budget. Almost 98% of its revenue is derived from advanced paid contract liabilities, indicating above-average risk aversion.

Despite State ownership, the executive board composition includes multinational experts and local automotive industry specialists. This diversity mitigates the risk of groupthink and brings a broader perspective to decision-making.

Considering the emerging automotive industry landscape, competition, ownership structure, and potential downsizing of 36% from the target price, UZMT is designated with an underperforming investment rating. These factors necessitate a reevaluation of expectations for the company's future performance.

BYD electric car price - Uzbekistan, Tashkent. Source - WWW.BYD.UZ

Prices of BYD cars as of February 22, 2024. 

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