Iran Automotive Industry Outlook 2025
Iran also looks at its automotive industry as an important sector for exporting its products to neighboring countries. Several national brands exist, such as Iran Khodro, SAIPA, Pars Khodro, Kerman Khodro, and Bahman that produce a variety of different models (such as Samand, Tiba, Dena, etc). IKCO and SAIPA are the biggest automotive manufacturers and together own more than 79% of the total market share.
by: Hoda Hosseinifar, Amir Ebrahimzadeh, Marlon Jünemann (ILIA Corporation)
Automotive Industry Iran – Past to Present
The benefits of developing a domestic automotive industry are significant. The worldwide automotive industry is estimated to have a total cash flow of more than 2,790 billion USD with a total production capacity of approximately 90 million (PV* and CV**) and it employs more than 48 million people (directly and indirectly). Accumulated this would make up for the 7 th biggest economy of the world.
The first Ford Model T's arrived in Iran in the 1930s and by 1955 annual imports had soared to approximately 10,000 units. Nowadays the domestic Iranian automotive industry is estimated to have a yearly nominal production capacity of 2 million cars (PV and PC combined) of which around 1.09 million units of PV and CV production capacity is being utilized. It employs more than 1.5 million people (directly and indirectly) making up for 12% of the countries workforce. Furthermore it has a daily nominal production capacity of 10 million components whilst drawing input from sixty related industrial fields.
With total sales of 12 billion USD it makes up for approximately 19% of the total industry, as well as for approximately 2.5% - 3% of Iran’s GDP. Furthermore it is responsible for 14% added value creation contribution to the whole industry. The average profit of the industry is 4.5%. The Iranian automobile industry makes up for 1.2% of world production, and currently holds rank 18 to 20.
Several national brands exist, such as IKCO, SAIPA, Pars Khodro, Kerman Khodro, and Bahman that produce a variety of different models (such as Samand, Tiba, Dena, etc.). IKCO and SAIPA are the biggest automotive manufacturers and together own more than 79% of the total market share.
Iran also looks at its automotive industry as an important sector for exporting its products to neighboring countries. In 2012 Iran exported 520 million USD worth of automobiles and car components. The situation for car and component manufacturers worsened in the following years, leading to a diminishing export value by 2013 to 263 million USD. In 2014 Iran’s share of exporting automobiles and car components was announced to be at 243 million USD. There are several reasons for the drop, however, experts concur that the key reasons are low quality and at the same time a high price.
Currently the Iranian automobile import market is ranked on 75th place worldwide, making up for less than a percent of the global automobile and component importing market share. In 2010, its market share was 0.2 percent with a total value of 2.5 billion USD. During 2011 the market share did not change, however, the total value of it increased to 2.9 billion USD.
Economic sanctions were a big setback for Iran’s automotive industry, especially at a time when the industry was ready for major expansion. Since the year 2012 the production output decreased by approximately 50% (from 1.4 million to 0.7 million), whilst at the same time the price of cars increased radically by about 300%. Furthermore the quality of Iranian-made cars dropped at a similarrate as well.
Sanction Situation and Impacts
Over the past years sanctions have had a serious effect on Iran's economy and its people. Since 1979 the United States has led international efforts to utilize sanctions in order to influence Iran's policies, including Iran's uranium enrichment program which Western governments fear is intended for developing the capability to produce nuclear weapons. Iran counters that its nuclear program is for civilian purposes, including generating electricity and medical purposes.
On July 14th 2015, the P5+1 and Iran reached a Joint Comprehensive Plan of Action (JCPOA) to ensure that Iran’s nuclear program will be exclusively peaceful. October 18th 2015 marks “Adoption Day” under the JCPOA. The agreement provides that in return for verifiably abiding by its commitments, Iran will receive relief from the U.S., European Union, and United Nations Security Council nuclear-related sanctions. “ImplementationDay” was initiated on January 16th 2016.
Despite the fact that Iran's economy has been suffering from the effects of intensified international sanctions since 2007, different industrial sectors have shown deviating levels of instability.
Since 2010, the Iranian total passenger car production dropped considerably, as a direct effect of the sanctions impact on the automotive sector.
Chinese automotive companies have gained a wide presence in the Iranian automotive market since 2010 by taking advantage of the sanction situation, mostly through cooperation's with domestic automakers (mainly the private ones). One of the first Chinese players in Iran was Chery, however, ever since many other brands have entered adding up to a total of ten today. Those ten Chinese automakers have so far launched 30 different models in a variety of price ranges. Some experts say that the private automotive sector is dominated by the Chinese. Furthermore, large numbers of vehicle importsfrom China have been accounted for.
According to research from IHS Automotive Assessment, in 2011 Chinese car manufacturers held around one percent of the Iranian car market and by 2015 their share had increased to approximately nine percent. Furthermore,they are ambitious about increasing their retail business.
Future of the Iranian Automotive Industry
Within Iran’s 2025 overall economic vision the particular automotive industry vision is defined as follows: “Reaching the number one ranking in the automotive industry of the region, 5 th ranking in Asia and 11th ranking in the world by focusing on competitive development based on technological advancement.” Although Iran´s vision for 2025 aims for a production of 3 million units, according to current trends and the assumption that no further sanctions will be imposed on Iran within the next ten years, it can be expected that Iran will produce up to 2 million PV by 2025 under the condition that the average growth rate will be the same as it was before 2011. Some of the most significant shortcomings of the Iranian automotive industry include insufficient financial access, poor financial statements in general, and low product quality for a high price.
At this moment in time the future of the Iranian automotive industry is being decided upon and thus it is hard to predict. Factors that will definitely have an influence on the future direction (aside from the lifting of sanctions) are the access to financing, international competition, potential joint ventures, and other macro-economic factors. Almost all sources and experts agree that the Iranian automobile industry will remain as one of the key industries of Iran for years to come. Furthermore, many believe that the Chinese players’ market share will diminish after sanctions relieve, and that it will be taken over by European companies. Some potentialscenariosinclude:
The domestic automotive industry plays an important role within the Iranian economy, with a turnover of approximately 12 billion USD and making up for 12% of the countries workforce. After sanctions were enforced in 2007 the automotive industry faced many challenges, however, with recent agreements between Iran and the P5+1 the Iranian automotive sectorwill remain a key driver of the economy.
Numerous paradigm shifts have already occurred and others are bound to follow:
• Recent visits by delegations from Germany, Italy, France and Japan for post-sanction cooperation. Most likely Iran will sign collaboration agreements with one or two European companies and two Asian ones – some experts argue that both Germany and France will definitely enter Iran whole heartedly, and Asian countries will include the Chinese, Koreans and Japanese
• Partnerships with major international automotive OEM will demand their direct investment and technology transfer – condition will be to provide new technologies and also to support the countries exports
• Promoting tier manufacturers
• Co-operations between OEM´s and banksto receive financial aid
• Developing export ratios and improving vehicle production capacity
• Determining the price by marketrather than government
• Improving the utilization of technology in buying / selling
• Reducing the role of middle men, also by increasing online supply in order to reduce prices
Although the Iranian automotive industry has a clear strategic plan until 2025 with the aim of reaching a production of 3 million units, ILIA predicts that total production cannot exceed 2 million PV by 2025. Furthermore, ILIA anticipates that the industry will collaborate with German and French companies under joint venture agreements, and that the Chinese will continue pushing their products into the market.
ILIA is of the firm opinion that no matter the direction that the Iranian automotive industry will take, it is certain that the government will continue to directly and indirectly supportthisindustry.