Georgia has established itself as a regional hub for the car trade since 2005, without its own car production industry. New cars are mostly imported from Japan, while used cars mostly come from USA, repaired in Georgia and sold to Georgians and regional customers. Therefore, cars are top export and import commodity in Georgia’s foreign trade. From car re-export activities, Georgia’s auto business earns 31% of total revenues on average annually, by our estimates.
2020 was a tough year for Georgia’s auto trade, to large extent affected by increased customs duties in Armenia. Car exports almost halved to US$ 404mn in 2020, mostly reflecting reduced demand from Armenia and Kyrgyzstan as these countries increased customs duties from January 2020. Car re-exports were also hindered by travel restrictions and used car market closure in 2020. However, online sales largely supported car trade with Azerbaijan and Ukraine. We expect car exports to improve in 2021, taking into account ongoing economic recovery in the region and last year’s low base.
We estimate full market size of auto business at GEL 3.8bn in 2020, with formal sector accounting for 70% of total market size on average during last 5 years. Notably, high gross margins on used cars incentivize many individuals to trade with cars, leading to large informal turnover in the sector. Another major source of informal activities are bazaars for used car parts.
Locals demand fuel-efficient cars, mostly used hybrids. Weighted average age of passenger cars registered in Georgia was 8 years in 2020 (7.5 in 2019). Hybrids accounted for 34.6% of total passenger car registrations in Georgia vs 5.9% of total in EU in 2019. In Georgia, used hybrids are preferred over gasoline cars because of their lower total cost of ownership despite higher price, with latter compensated within 3 years of ownership on average.
There are healthy demand drivers on cars in medium-term – including outdated auto park and growing women drivers. Out of 1.38mn vehicles registered in Georgia, only 1.06mn (77% of total) are on roads, while others are lapsed, according to our estimates. Moreover, passenger car penetration in Georgia is only 234 (excluding lapsed cars), far below the rates found in Central and Eastern Europe (e.g. 642 in Poland, 562 in Czech Republic, 355 in Romania etc.). Despite the rising number of Georgian female drivers, only 20% have driving license vs 72% of male as of 2020, showing room for further expansion. We estimate c. 32k female to obtain driving license annually over the next 10 years.
We expect gradual transition towards electric mobility in medium-term. Many drivers shifted to hybrid cars, while electric vehicle (EV) imports are still low in Georgia. Four major barriers keep EV penetration rates low globally and in Georgia also: 1) high price, 2) limited driving range, 3) lack of charging infrastructure and 4) limited choice of available models. However, these barriers are expected to be eliminated in medium-term, leading to 32% of total auto sales being EVs by 2030 globally, according to IEA.
