Russia's Vehicle Scrappage Policy and Fiscal Resilience: Assessing Revenue Generation Amid Declining Auto Sales

Russia's vehicle scrappage policy, introduced in 2024, aimed to reshape its automotive market by curbing foreign imports, boosting domestic production, and generating state revenue. However, the policy's effectiveness is now under scrutiny as declining car sales and a revenue shortfall threaten its fiscal and industrial goals. For investors, the interplay between regulatory incentives, market dynamics, and fiscal resilience offers both risks and opportunities in the automotive and recycling sectors.

Policy Design and Initial Objectives

The Russian government raised scrappage fees by 70–85% in October 2024, with further annual increases of 10–20% planned through 2030. These fees, applied during vehicle registration or import, are designed to discourage foreign competition—particularly Chinese automakers—and subsidize domestic producers like AvtoVAZ. For example, the fee for 1.0–2.0-liter engines jumped from 306,000 to 556,000 rubles ($3,181 to $5,791), with plans to raise it to 667,000 rubles ($6,948) by January 2025 The Kremlin’s new tax policy will send car prices skyrocketing^[1]. The policy also includes full reimbursement for domestic manufacturers, creating a stark cost imbalance for importers Russia Faces Scrappage Fee Revenue Shortfall Amid Struggling Car Market^[2].

Revenue Shortfall and Market Realities

Despite these measures, the government faces a significant revenue shortfall. In 2025, scrappage fee collections fell far below the projected 2.01 trillion roubles ($24.77 billion), with Finance Minister Anton Siluanov acknowledging the gap as a risk to infrastructure and industrial projects reliant on these funds Russia expecting scrappage fee shortfall as car market struggles^[3]. A 27% decline in new car sales between January and April 2025 compared to the same period in 2024 exacerbates this shortfall Russia expecting scrappage fee shortfall as car market struggles^[3]. Analysts attribute this drop to the dominance of Chinese automakers, which captured 63% of the market in 2025 after Western brands exited due to sanctions Russia’s Car Fleet Dynamics – and Why They Matter^[4].

The policy's immediate impact included a surge in pre-emptive purchases, with car sales hitting a 3.5-year high in August 2024 The Kremlin’s new tax policy will send car prices skyrocketing^[1]. However, this temporary boost has given way to a slowdown, as higher prices and tighter credit conditions—driven by the Central Bank's inflation-targeting hikes—discourage buyers. AvtoVAZ CEO Maksim Sokolov predicts a 25% decline in total car sales for 2025 Car Sales in Russia May Fall by 25% in 2025, Avtovaz CEO Says^[5].

Implications for the Recycling Industry

The scrappage policy was intended to fund recycling initiatives and environmental projects. However, the revenue shortfall undermines these goals. While the government plans to use fees to manage vehicle disposal, the lack of funds may delay or cancel projects. Recycling companies face an uncertain outlook, as the policy's focus on import restrictions and domestic subsidies shifts attention away from long-term recycling infrastructure Economic and Fiscal Resilience of Russia's Regions^[6].

Investor Considerations

For investors, the policy's mixed outcomes highlight key dynamics:
1. Domestic Automakers: Companies like AvtoVAZ benefit from subsidies and a shrinking foreign competition. AvtoVAZ's 2025 investment program of 45 billion rubles, focused on R&D and capacity expansion, signals confidence in its market position Car Sales in Russia May Fall by 25% in 2025, Avtovaz CEO Says^[5]. However, reliance on government support raises questions about long-term sustainability.
2. Chinese and Localized Producers: Chinese automakers, such as Geely and Chery, are adapting by localizing production to offset fee increases. This trend could stabilize their market share but may require significant capital expenditures for supply chain adjustments Russia’s Car Fleet Dynamics – and Why They Matter^[4].
3. Recycling Sector: While the policy's environmental goals remain, fiscal constraints limit growth opportunities. Investors may need to prioritize companies with diversified revenue streams rather than those dependent on state-linked projects.

Fiscal Resilience and Policy Adjustments

The government's fiscal resilience is tested by the scrappage policy's unintended consequences. With scrappage fees failing to meet revenue targets, Moscow may need to revise its approach—potentially scaling back fee hikes or redirecting subsidies. Such adjustments could ease inflationary pressures but might weaken the policy's effectiveness in shielding domestic producers.

Conclusion

Russia's vehicle scrappage policy reflects a high-stakes gamble to revitalize its automotive industry. While it has succeeded in raising costs for foreign competitors and boosting short-term domestic production, the revenue shortfall and market volatility pose significant risks. For investors, opportunities lie in domestic automakers and localized foreign producers, but caution is warranted given the policy's fiscal and economic uncertainties. As the government recalibrates its strategy, the automotive and recycling sectors will remain pivotal indicators of Russia's broader economic resilience.