Iranian Automotive Industry – Opportunities and Threats

Iranian Automotive Industry – Opportunities and Threats

Iran’s automotive industry is the second most active industry in the country, after the oil and gas industry. It employs more than 700,000 factory workers. Furthermore, Iran is the biggest car producer in the Middle East. It was the 11th biggest car producer in the world before the economic sanctions were imposed. The sanctions had a severe effect on the growth of the automotive industry – as a matter of fact production decreased from 1.5 million cars per year to less than 700,000.

With the JCOPA implementation at the beginning of 2016 the Iranian automotive sector will get back on the road and is ready for substantial improvements and growth. ILIA Corporation has studied the industry carefully and identified the threats and opportunities that it will face (strengths and weaknesses will be discussed in a second blog post in this regard).

Opportunities of the Industry:

  • Sanctions relief and improvements in international collaborations
  • Improvements in macroeconomic KPI’s (based on international predictions)
  • Continuation of direct/indirect and official/un-official support for the industry (government, parliament, etc.) such as cash injections
  • Implementing “used car replacement” policies
  • Recent loans made available for purchasing local cars (approved in November 2015)
  • High import tariffs for imported finished cars, providing opportunities for local producers
  • Further expansion of specific and already existing ‘Automotive Law’
  • Tax cuts for R&D activities
  • Potential collaboration agreements with big international car OEM and tier producers
  • Allocating active manufacturing sites to produce the products of strategic partners along with establishing unique after sales service networks, as well as designing and developing hybrid cars and founding joint R&D centers (by 2017)
  • Benefiting from the increased trust level that people have in e-commerce technologies and online selling platforms, in order to increase sales and also to omit the middle man along the value chain
  • Passive demand – many people have been wanting to buy cars, yet they have not made the decision so far, assuming that due to sanctions relief the prices will decrease. This means there is demand which is not active yet
  • Using the ‘job creation’ logic in conversation with the countries policy makers, in order to achieve favorable and supportive policies
  • FIPA (Foreign Investment Promotion and Protection Act) provides protection to foreign investors and now allows relatively good terms for the repatriation of profits
  • Iranian government will not allow for this industry to fail, as it does not only add economic value for Iran, but also provides political power
  • Cars are a consumer good with special meaning for the Iranian society and most of the youth are trying to buy an automobile as soon as they have sufficient funds

Threats to the Industry:

  • No clarity and agreement in regards to the future of the industry
  • Mismatch between industry development plans and factual reality
  • Internal arguments and conflicts amongst car manufacturers (being reflected in the media)
  • High amount of accumulated debt by Iranian automotive OEM’s towards the financial system – as a result the central banks potential reaction to financial reports and ratios
  • High interest rates limiting the access to capital
  • Low interest towards Iranian cars in the targeted export countries
  • Changing Iranian customers preferences in regards to car design and other features
  • Changing agendas of Iranian local stakeholders and political parties
  • Low satisfaction rate of Iranian customers after purchase, sometimes even resulting in social campaigns (recent anti-local car manufacturers campaign, as a result of social organizations gaining power)
  • Customers preference of middle-class to buy even second-handed foreign cars compared to local ones
  • Arrival of low-end and low-priced Chinese cars, offering competitive prices
  • Iran’s middle class is growing which results in higher demand for domestic passenger cars, on the other hand people expect higher quality from domestic manufacturers as they have much more power through choice (in 2015 a campaign to boycott “sub-standard and expensive” Iranian-made cars heated up social media debates)
  • Reported ban of Iranian built cars by its biggest export market Iraq (potentially due to rumors caused by international competition) resulting in the whole region changing their perspective on Iranian produced cars

Overall the Iranian automotive industry seems to gradually return to its path of growth and starting to collaborate with western companies – buckle up and get ready for the ride.

If you would like to find out more about the Iranian automotive industry, please feel free to check out our recent white paper publication – Iran Automotive Industry (Outlook 2025).

Written by
LIA Corporation Consultant Hoda Hosseinifar

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