By Gleb Stolyarov and Alexander Marrow

(Reuters) - Chinese carmaker Chery has started assembling cars in Russia for sale in the country at three factories vacated by Western rivals including Volkswagen and Mercedes, five people familiar with the matter told Reuters.

Chinese carmakers have grabbed more than half of Russia's car market in terms of sales since most Western counterparts abandoned the country following Moscow's February 2022 invasion of Ukraine.

Now, they are extending their reach to account for more of Russia's domestic production, too, highlighting how Beijing is playing a more influential role in Russia's changing manufacturing landscape and economy since the invasion.

In addition to finished car imports into Russia, Chery, which makes up almost a fifth of Russia's passenger car sales, is importing nearly finished cars and completing the assembly in three Russian factories, the people said.

Four of the people, including dealers who manage relationships with the plants, declined to be identified because they are not authorised to speak to the media.

China's biggest car exporter is likely to be betting on strong demand in the country as Russia's domestic market struggles with limited output and underused production capacity, the sources said.

Chery said in a written statement it supplies the Russian market with passenger cars, but does not plan to build or buy its own factories there. It did not comment in response to Reuters' questions about the assembly work at the factories.

Chery's move to start production at the three factories and the sales launch of models being assembled there have not previously been reported.

Russia is raising fees on imported cars, potentially encouraging foreign carmakers to localise production.

Chery's global expansion plans envisage the company entering more than 60 new markets in the next three years, Vice President Shawn Xu said in July.

After the European Union's decision to confirm tariffs on imports of electric vehicles made in China, Chery's China-made EVs will be subject to an additional duty.

Chery's plans to make some models in Russia received approval for safety standard compliance, Russian documents dated from February to August and reviewed by Reuters show.

NEW XCITE MODEL

In factories once owned by Volkswagen, Mercedes-Benz and Nissan, Chery's Tiggo SUV and Exeed models are rolling off the production line, overseen by the plants' new Russian owners, car dealers and two people familiar with the matter told Reuters.

At the St Petersburg Automobile Plant, sold by Japan's Nissan to the Russian state in late 2022, the Tiggo 7 is being rebranded as the Xcite X-Cross 7, one of the people told Reuters.

A Nissan spokesperson declined to comment.

Xcite won Russia's "best new brand" at an SUV awards ceremony in late September. The plant, when launching production in January, said it was working with an unnamed "international partner". It has sold 3,447 cars between May and September.

Rebranding a Chinese car as Russian mirrors the approach taken with the Soviet-era Moskvich, which was revived at Renault's former factory in Moscow in 2022.

The Moskvich was a rebranded compact crossover made by China's JAC, sources said at the time and JAC equipment on display at the launch in late 2022 showed.

Chery and Russia are keen to minimise publicity about the production in Russia, one of the sources said. China's cooperation with Russia has already drawn scrutiny from the West which is seeking to clamp down on efforts that may help Russia prosecute its invasion of Ukraine.

The company's actions in Russia are entirely separate from its European expansion plans, a spokesperson at Chery's European headquarters in Frankfurt told Reuters.

Russia's industry and trade ministry did not respond to a request for comment.

FINAL ASSEMBLY

In Kaluga, two hours south of Moscow, car dealer AGR Automotive is assembling Chery's Tiggo crossovers in small volumes at a plant with annual capacity of 225,000 vehicles, three of the five people familiar with the matter said.

AGR did not respond to a request for comment.

Mikhail Pogonov, brand manager for new Chery cars at the ASC Group dealership near Moscow, said Chery models were already being assembled in Kaluga, specifically Tiggo crossovers, overseen by Chery engineers.

In a showroom with Tiggo 7 models on display, he told Reuters that he sold 142 Chery cars in September, more than double the total in October 2023.

"Sales growth is already more than 100%," Pogonov said.

Chery, along with brands it owns like Exeed and Omoda, almost quadrupled its new car sales to just over 200,000 vehicles in Russia in 2023, compared with 2022, based on data from Russian analytical agency Autostat. It has already surpassed that figure in 2024, according to Autostat data.

Regional deputy governor Vladimir Popov said in August that the Kaluga plant, which sat idle for almost two years as its former owner Volkswagen negotiated an exit deal, would produce 27,000 cars this year.

Volkswagen did not respond to a request for comment.

Chery's export strategy is known as "semi knocked down" (SKD), one source said, with Tiggo models arriving at the Kaluga plant almost completely assembled. Chery pays the plant's owners a fee to finalise assembly there.

In Esipovo in the Moscow region, another plant is producing Chery's Exeed VX, a mid-size luxury crossover, according to two car dealers. The Kommersant daily first reported on plans for Exeed production at the factory.

The plant, sold by Mercedes-Benz to car dealer Avtodom in April 2023, has 25,000 annual capacity.

Mercedes-Benz said Avtodom has been responsible for the plant's operations since April 2023. Avtodom declined to comment.

($1 = 0.9117 euros)

(Reporting by Gleb Stolyarov; additional reporting by Alexander Marrow, Reuters TV and Nick Carey; Writing by Alexander Marrow; Editing by Josephine Mason and Jane Merriman)