Drastic declines in production
US sanctions against the Iranian motor vehicle sector, which came into force again in August 2018, have a resounding effect. The corresponding “Executive Order” provides for sanctions against foreign legal entities and natural persons when knowingly transacting or facilitating significant transactions with the Iranian automotive industry.
Stocks of foreign car parts and pre-products required for production seem to have been largely used up and the procurement of new parts is often impossible or only possible with costly detours. In 2017/18 (March 21 to March 20, Iranian year 1396) an average of about 120,000 vehicles per month were produced by local manufacturers. In the last month (November/December 2018, Iranian month Azar), there were only 38,275 vehicles produced, according to statistics of the Ministry of Industry.
The negative production development since mid-2018 suggests that passenger car production will shrink by around 40 percent to just 0.86 million units in 2018/19 compared to the previous year. If the political environment does not improve significantly, a decline to 0.5 million vehicles is expected in 2019/20.
Iran: Motor vehicle production 2016/17 to 2018/19 (in units) 1)
|2016/17||2017/18 2)||2018/19 3)|
|Small and medium buses||905||1.381||2.400|
|City buses and coaches||1.158||1.782||700|
1) Iranian years (March 21 to March 20) 2) provisionally 3) forecast
Source: Ministry of Industry, Mining and Trade
Total vehicle output (passenger cars, trucks, buses, etc.) fell to 42,145 units in November/December 2018 (same month previous year: 146,382). For the first nine months of 2018/19, automobile production dropped by 31 percent to 0.76 million vehicles. Iran’s largest car manufacturer, Iran Khodro, was only able to assemble 20,196 vehicles in November/December 2018 (same month previous year: 66,853). Saipa, the second largest carmaker, reports a 76 percent decline to 15,572 vehicles. Both companies together have a market share of 85 percent.
Instead of hoping for a comprehensive modernization of the motor vehicle industry in cooperation with Western carmakers, efforts have now been steered to stabilize the production of the completely outdated car models, which have a high proportion of locally manufactured components. For example, the Iranian Khodro built, long-dead Peugeot models “405” and “206” and modifications of these models remain bestsellers in Iran. Saipa is likely to focus on different variants of the “Pride”, a small car based on the 1980s Kia Pride.
Lighthouse projects cancelled
Two of the so-called “Lighthouse Projects”, the local production of the modern “Peugeot 2008” and the “Citroen C3”, had to be stopped due to the withdrawal of the French PSA group. Currently, the assembly of kits, which were imported before August 2018, is still in progress. Iran Khodro has completed 1,021 “Peugeot 2008” in November/December; so far, a total of 5,492 units of the small French SUV have come off the assembly line in Iran. Saipa announced the delivery of the first “Citroen C3” in late December 2018. In May 2018, the newly formed Saipa-Citroen joint venture had received orders for 2,000 “C3”. A deposit of 600 million Iranian rial was required, about 12,000 Euro. Today, the equivalent value is only 5,000 Euro due to the devaluation of the currency. According to the company, Saipa is in a position to deliver all pre-orders, although observers have doubts.
The production of Renault/Dacia models has largely come to a standstill. Renault had big plans for Iran as well. Through a new joint venture and existing collaborations with Saipa and Iran Khodro, Renault wanted to create a production capacity of up to 350,000 vehicles annually in Iran. Over 150,000 Renault/Dacia vehicles were assembled in 2017/18, but in November/December 2018, production fell to only 402 Renault/Dacia vehicles (model Sandero) manufactured by company Iran Khodro. Pars Khodro, an Iran Khodro daughter, produced 275 Sandero. The Sandero production is expected to be discontinued soon.
Hopes for China have not yet been fulfilled
After the withdrawal of the European manufacturers, an expansion of the production of Chinese brands was expected, however, a drop is currently observed. During the sanctions phase prior to 2016, Chinese manufacturers in Iran had strengthened their market position. Now, US sanctions do not seem to be irrelevant to China’s auto makers anymore.
Chinese car manufacturers are represented in Iran with all vehicle lines (passenger cars, trucks, buses). The share of Chinese brands in Iran’s car production was around 16 percent in 2017/18, equivalent to 0.23 million vehicles. The largest Iranian manufacturers of Chinese brands are the Modiran Vehicle Manufacturing Company (brand: Chery), Saipa Group (Brilliance, Changan), Iran Khodro (Dongfeng, Haima) and Kerman Khodro (Jac, Lifan, BYD). Kerman Khodro reports a decline in production of JAC and Lifan vehicles by 38 percent to 2,115 units in November/December 2018. At Modiran, a subsidiary of Kerman Khodro, the production of Chery models is in sharp decline as well: in November/December 2018, the output was only 1,918 vehicles (same month previous year: 7,339); during the first nine months of 2018/19, there was a reduction of 31 percent to 36,072 vehicles.
Saipa hopes to expand its cooperation with its Chinese partners. Saipa had assembled approximately 12,000 vehicles of the Changan SUV model “C35” in 2017/18, as well as 51,000 Brilliance models (H220, H230, H320, H330). The “CS35” production slumped to 97 units in November/December 2018, totaling 8,841 in the first nine months of 2018/19. The Brilliance production has fallen sharply, in November/December, the output was halved to 2,257 vehicles. Iran Khodro was only able to complete 820 Dongfeng models in November/December (same month previous year: 2,246). Haima output dropped to 823 cars in this period.
Deep structural problems plague the automotive industry
The reactivation of US sanctions comes at an unfavorable moment for the Iranian car manufacturers. Since many years, the industry is heavily indebted and has high, long-term liabilities to local suppliers. Several foreign car-parts suppliers had to reduce their Iranian business even before US sanctions were reinstated due to insufficient liquidity of the car manufactures.