Iran Auto Industry 2017-18: All you need to know

Financial Tribune- Iran’s key automotive sector experienced a significant surge during the fiscal which ended in March. With 1,534,799 units rolling out of factories, the companies collectively recorded a 13.7% year-on-year growth.

Data released by the Ministry of Industries show that during the one-year period, 1,441,577 cars were produced by local firms indicating a 14.8% YoY increase. The businesses have over 50 models on offer.

With the exception of pickup trucks, all fields of the sector observed an increase in their annual output. Pickups are the second most manufactured automotive products in the country.

Several foreign auto companies are active in Iran through joint ventures with local firms. The biggest share of the market is held by the French-derived cars (42%), followed by locally-designed vehicles (39%), Chinese cars (16%), South Korean vehicles (2%) and Japanese brands a meager 1% share.

According to Industries Minister Mohammad Shariatmadari, the auto industry has a 3.5-4% share in Iran’s GDP and 12% of the Iranian workforce is employed by the key sector. The annual turnover of the auto industry is $12 billion.

International Ties

The significant boom to some extent was due to the renewal of old ties with French automakers and strengthening collaborations between East Asian and Iranian companies.

During the past Iranian fiscal, several joint ventures between local and foreign firms kicked into full force. For instance, the country’s largest carmaker Iran Khodro and its French partner PSA Group’s Peugeot brand started production of Peugeot 2008 in Iran as part of a deal signed in June 2016.

SAIPA subsidiary Pars Khodro boosted production of Renault Sandero after the model received a warm welcome from the public, and under a joint venture deal signed in March 2017, Kerman Motor, a leading private automotive firm, started production of three Hyundai models.

Tight Race

Furthermore, SAIPA is on a fast track to replace Iran Khodro as the country’s largest auto manufacturer. This has boosted competition in the market and goaded both carmakers toward increased output.

According to projections based on the two companies’ current gross rates, SAIPA is on course to trumping IKCO in less than a year.

With a total output of 712,268 units, during the last fiscal which ended in March, IKCO’s year-on-year production rate increase stands at 8.9%. This is while SAIPA manufactured 666,488 units recording a 16.8% YoY growth.

The gap between the two firm’s output rate is narrowing and both companies’ strategies for this year show they are preparing for a showdown.

During the closing month of the last fiscal which ended on March 21, SAIPA churned out 61,298 vehicles, 2,733 units higher than IKCO’s total output; this was a first in Iran’s automotive history.

To retain its longstanding dominant foothold in the local market, IKCO has to raise its game or will be replaced by SAIPA as the largest manufacturer in Iran’s auto industry.

Red Dragon Raging

Chinese carmakers made a foray into Iran some 10 years ago during former president Mahmoud Ahmadinejad’s tenure when sanctions severed Iranian carmakers ties with their European peers. Since then several Sino-Iranian joint ventures have been forged and currently, vehicles with badges of 14 Chinese brands are roaming Iranian roads.

During the past Iranian fiscal, 228,934 Chinese cars were made in Iran, recording a 49% year-on-year growth. Chinese models currently hold a 16% share of the industry, 4 percentage points higher than the previous year’s 12%.

Walking in major Iranian cities, one can see cars on the street carrying the marques of Brilliance, BYD, Changan, Chery, Dongfeng, Geely, Haima, JAC, Lifan, Zotye, Besturn, Great Wall, FAW and SAIC MG.

Both IKCO and SAIPA along with private automakers have initiated new rounds of negotiations with their Chinese peers to introduce new models into the market.

French Affair

Iranian carmakers have a long history of collaborations with French automotive giants PSA Group and Renault. The ties have been renewed recently and French carmakers have staged a full-scale comeback into Iran’s automotive scene.

French carmaker Renault signed a €660-million trilateral production deal with Iran Industrial Development and Renovation Organization and a local private company Negin Khodro in August 2017. Three Renault models, namely Kwid, Duster and Symbol are to be produced in Iran under the deal.

Currently, two Renault models Logan (aka Tondar 90) and Sandero are made in the country and the cars carrying Renault’s emblem hold an 11% share of the industry.

Group PSA’s Peugeot and Citroen have signed two separate joint venture deals with the two main Iranian car companies, IKCO and SAIPA.

IKCO and Peugeot signed a €400-million deal in June 2016. Through the 50-50 joint venture known as Iran Khodro Automobiles Peugeot (IKAP), three models, namely Peugeot 208, 2008 and 301, will be produced in Iran.

IKCO currently assembles four Peugeot models namely 405, 206, 207 and 2008. During the past Iranian fiscal, 447,004 units of the four models were made in the country accounting for 31% of Iranian carmakers’ total output.

SAIPA and Citroen signed a 50-50 joint venture in late 2016 according to which the Paris-based carmaker has undertaken to invest more than €300 million ($352 million) in Iran during the next five years. Several Citroen models including C3 and C4 are to be manufactured in Iran; Test assembly of the former was launched in the country in January