Financial Tribune- The lifting of trade sanctions and moves to open the Iranian economy to foreign direct investment have seen a number of international car manufacturers queue up to break into the country’s rapidly expanding automotive industry.
In late September France’s Renault announced it had finalized an agreement to create a joint venture (JV) with state-owned Industrial Development and Renovation Organization of Iran (IDRO) to expand the company’s existing presence in the local market, Oxford Business Group writes.
Under the terms of the JV, in which Renault has a majority stake, the car manufacturer will establish a new plant with an initial production capacity of 150,000 units per year, adding to its current 200,000-unit capabilities in the country. The plant is expected to come up within two years, and Renault will also be authorized to set up its distribution network, including sales and after-sales dealers.
Mohammad Reza Nematzadeh, minister of industry, mines and trade, said the deal was part of a broader government initiative to expand and strengthen the automotive industry’s product offerings.
“The Iranian government wants to attract foreign investment in the domestic car industry to bring competitive new products benefitting Iranian customers with respect to standards, quality and safety,” Nematzadeh said when the agreement was signed.
For its part, Renault is looking to expand its footprint to become the third-largest producer in Iran – behind Iran Khodro (IKCO) and SAIPA, both subsidiaries of IDRO –according to a statement made to industry media by Bernard Cambier, senior vice-president and chairman of the Africa-Middle East-India region at Renault. Currently, Renault has cooperative deals with both firms for the production of Renault-designed passenger vehicles.
The Renault deal comes as fellow French manufacturer Citroën looks to regain its position in the Iranian market, after pulling out of the country in 2012.
In early October Citroën’s parent company, Groupe PSA, signed a JV agreement with its former partner, SAIPA, to produce Citroën vehicles at a new plant in Kashan.
Under the 50:50 agreement, the partners will invest more than $317 million in manufacturing and research and development capacity through to 2021, with production of three Citroën models to begin in 2018.
SAIPA officials have said locally sourced parts and supplies will account for 35% of production when assembly begins, rising to 70% by 2020.
Leading the Way
Last year domestic output stood at just under 885,000 passenger vehicles and around 97,500 commercial vehicles, according to the International Organization of Motor Vehicle Manufacturers. While most of the production was geared towards meeting local demand, some units were exported, mainly to countries in the MENA region.
The MENA market is expected to see strong growth over the next five years, with Iran set to be among the leaders regarding expansion, according to PwC’s “2016 Auto Industry Trends” report. Demand in the Iranian market is expected to more than double to 2 million vehicles by 2020, according to estimates made by industry stakeholders.
Issued in October, the report said that expansion in MENA will also help offset projected deceleration in some other established and developing markets, such as Russia, Brazil and the US.