Future of the Iranian Automobile Market

Iran Automotive Industry Outlook 2025

Future of the Iranian Automobile Market

Within Iran’s 2025 overall economic vision the particular automotive industry vision is defined as follows: future of iran automobile industry

“Reaching the number one ranking in the automotive industry of the region, 5th 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.

The Iranian Ministry of Industry has developed a strategic plan for the automotive sector consisting of nine key strategies in order to reach the aforementioned target. The nine key strategies and some main action plans are:

1. Increase manufacturing power

Gradual reduction/elimination of auto manufacturing in SKD and FCKD format
Establishment and promotion of design centers both in part and auto manufacturing sector

2. Investment Development

Direct investment/joint part makers/ foreign auto markers with valuable brands
Development of manufacturing units for main raw material (paint, glass, etc.)

3. Increase Technology Penetration

Support for research and development activities
Design and development of new technologies in the fields of electricity and electronics

4. Development of Inter-business collaboration

Consolidation of tier manufacturers and automobile OEM, so that 5 leading tier manufacturers and 3 automobile OEM are capable of competing in the global market

5. Expand International Collaborations

Joint venture with big reputable global manufacturers
Prediction of export volume in dealing with foreign contracts

6. Diversification in Finance Methods

Offering purchase credits for buying instruments
Create fund for supporting auto industry with proper capital

7. Managing Import Value of Cars and Parts

Defining tariffs for five-year period in order to increase transparency
Banning import of used cars and parts

8. Supporting Domestic brand Consumers

Monitor performance of Iranian car manufacturers and importers in quality, sale and after-sale services

9. Reforming Consumption

Promoting culture of buying domestic brands
Promoting culture of using micro-cars and hybrid cars

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 potential scenarios include:

Probability	SCENARIO	JUSTIFICATION	RESULT
Very Low	Automotive industry achieves the vision 2025	Iran`s automotive industry has both economical and political importance for the government, as well as there is a solid infrastructure for increase in production. Companies could produce much more cars from a technical and capacity point of view.	3 million yearly car production output by 2025.
	Iran continues with current automotive output rate and under oligopolistic conditions	The government keeps the industry alive, however, insufficient R&D activities are being undertaken to increase the production rate exponentially. Tariffs would still be high and oligopolies will continue to benefit from market conditions.	2 million yearly car production output by 2025 (linear growth).
	Automobile industry is terminated and Iran switches to other industries	Costs of car production in Iran are high and Iran cannot compete with strong European and East Asian competitors. Consumers are more interested in foreign brands and the government cannot keep the borders closed for imports of non-domestic cars.	Iran becomes a manufacturing hub for foreign car makers, but Iranian tier manufacturers will dominate.
	Third big manufacturer rises and takes market share from IKCO and SAIPA	Several parties are interested in ending oligopoly situation within the Iranian automotive industry and by developing a third qualified manufacturer Iran could achieve this goal.	Iranian car production rate surges due to increased competition.
	Iranian automotive industry stops manufacturing and starts assembling instead	Iran cannot keep up with international competition, however, cannot afford to drop automotive industry altogether. International players show interest in the Iranian market and policies are put into place that do allow car imports without technology transfer and employment assurance.	Automotive tiers remain and the industry turns into an assembly based one for international players, resulting in higher automation and enhanced car quality.
	Iranian automotive industry goes into joint venture agreements mainly with Chinese companies	China has always stayed with Iran and today is the main economic and political partner of the country. Chinese cars in Iran have seen a sharp increase in sales during the past years and they can compete with their low prices for the Iranian middle class.	Chinese car and parts manufacturers increase their activities in Iran, leading to SAIPA and IKCO loosing their dominance until 90% of the market is in Chinese hands.
	Iranian automotive industry mainly signs joint venture agreements with French companies	France has been a partner of Iran in the automotive industry for a long time. The Iranian automotive infrastructure is compatible with French technology and it makes the joint venture simple for both parties. However, there are concerns about their accountability during difficult times.	Peugeot will collaborate under a new legal framework with IKCO and Renault may buy some more shares of SAIPA, whilst collaborating a joint venture agreement.
Very high	Iranian automotive industry mainly signs joint venture agreements with German companies	There are some reports from the Auto Parts Manufacturers Association that Iran’s automotive part industry will sign joint venture agreements with German companies (e.g. Crouse). As a result this will force other manufacturers to collaborate with Germany. Also, there are some conflicts between IKCO, SAIPA and the French companies, as they neglected the Iranian market after the sanctions were imposed.	The Infrastructure of part manufacturers will change and German technology is demanded. For the new factories the machinery will come from Germany. French companies may have some products to be launched in Iran.