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Ukraine Invasion Hits Yandex; Is China Next?

by Roger Lanctot | 3月 10, 2022

In the grand scheme of personal tragedy unfolding in Ukraine and, soon, across Europe in the wake of Russia’s unprovoked invasion of Ukraine, the woes of a particular mobility company appear to be of little consequence.  The implications for this single company will resonate globally and, uniquely, in the automotive industry.

Reports have spread rapidly regarding Yandex’s compromised financial condition – potentially defaulting on $1.25B in bonds due to constraints on Russian banks applied by Western governments in response to the Ukraine invasion. A larger concern – politically and financially – will be the implications for China. 

China's President Xi Jinping has stood by Russia's Vladimir Putin, seeking to score its own propaganda points and amplify its own claims on Taiwan. Unlike Russia, though, China is far more dependent on overseas markets. With the onset of EVs finally cracking open otherwise closed Western markets for automobiles from China, might China be putting billions of dollars in commercial prospects at risk by continuing to support Putin’s reckless, criminal acts?

In this sense, Yandex is something of a canary in the coal mine. The Russian search, ride-hailing, and e-commerce company – though ostensibly located in The Netherlands and listed on the NASDAQ exchange - has almost all of its operations based in Russia. The Automotive News reported that Yandex has “paused” its autonomous vehicle and sidewalk delivery robot testing in the U.S.

The Guardian in the U.K. reports a growing chorus of politicians urging the U.K. government to restrict Yandex’s U.K. operations which include Yango Deli, a delivery service launched late in 2021. Yandex has been blocked in Ukraine since 2017 and Lithuania requested that the Yandex app be removed from Google and Apple app stores as a ‘threat to national security.’

Yandex has followed a familiar path for what few Russian tech startups there are. To gain access to western investment it was necessary to achieve some practical separation from Russia – hence the incorporation in The Netherlands.

In this regard, it’s instructive to consider another Russian startup – WayRay – which also shifted its headquarters outside Russia in its pursuit of foreign investment. Founder Vitaly Ponomarev described the problem of locating investment within Russia to Reuters in 2016:

“ ‘The whole venture capital industry in Russia is based on investing into copycats – something proved in the West – and it’s mostly IT, not hardware and not high-tech,” Ponomarev said.

“ ‘Actually there is no secret recipe on how to raise money for hardware projects in Russia. I think this is almost impossible,” he said.

“(His colleague) Svarichevsky said too many of Russia’s wealthy were content to spend their money on extravagant lifestyles, rather than look for new products to back or companies to build.

“ ‘There are people who have money in Russia, but they don’t want to be involved in anything complicated,” he said. “In the U.S. there aren’t that many people who just want to spend money on women and holiday resorts. They want to build something.’ ”

There are three important contrasts between Russian and China in this regard. The first is the fact that Chinese companies have been able to find partners and investors from outside China. The second is that China has a long-term strategy of establishing self reliance in core technologies such as semiconductors. Finally, China's government has a history of intervening unilaterally for political reasons.

Yandex’s Chinese ride hailing competitor, DiDi Xuching was briefly listed in the U.S. before experiencing a backlash from Chinese regulators and relisting in Hong Kong – while simultaneously suffering further restrictions, layoffs, and losses in market share. While technology investments in Russian startups are few and far between, China’s increasing relevance in the global technology marketplace and its ability to expand its economy relies heavily on external commercial relationships.

These relationship are key to the nation’s ambitions in the EV market as well as in the development of autonomous vehicles. Multiple operators have struck up partnerships with chip makers such as Intel and Qualcomm and Chinese EVs have begun arriving in European markets – building on existing commercial beachheads in Eastern Europe, South America, the Middle East and Africa.

Despite all of these green shoots of automotive opportunity, though, China – the largest automobile manufacturing base in the world – exports a tiny fraction of the vehicles it manufactures. If China’s support of Russia continues unabated, the prospects for companies including auto makers Nio Motors and Xpeng, and robotaxi companies, AutoX, and WeRide could be jeopardized.

Even more important than the short-term financial impact on Yandex is the long-term reputational impact to its brand from its association with Russia’s invasion of Ukraine. To put this in context, it is worth noting that years after the departure of Uber’s founder Travis Kalanick and all of the allegations and charges of illegal and fraudulent activities and crime perpetrated during his leadership, the company’s reputation is still in tatters. If Yandex is widely sanctioned, will consumers, investors, or regulators ever look at the company the way they did prior to Russia's invasion of Ukraine?

How will partners of Chinese EV makers and autonomous vehicle and robotaxi startups value and regard their relationships without a diplomatic reset from China’s political leaders? Yandex is working through what looks, for now, like a minor financial setback. Further sanctions or financial shortfalls could result in more permanent damage to Yandex and a learning experience for Russia’s friends in China. It's not too late to step back from the growing reputational crater.

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