Iran: Renault JV challenges state monopoly on local car market

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Two leading state-run carmakers, Iran Khodro and SAIPA, are struggling to maintain their dominant roles on the Islamic Republic’s marketplace, but a new joint venture with French Renault is here to challenge the state-backed car makers.

After almost one year of negotiations, Industrial Development and Renovation Organization of Iran (IDRO) cemented a €660 million worth deal with French automaker Renault for launching the joint venture in the Middle Eastern country on Monday.

The JV deal stands out, as a foreign company, for the first time in Iran’s history, is going to manufacture and supply its products without any links to the domestic giants, who have grabbed the lion’s share of the country’s car market in the absence of any international rivals.

Iran’s automotive industry and shortcomings

"Iranian policymakers over the past four decades have given a top priority to the automotive industry due to the industry’s capability of creating new job opportunities and also a high level of demand in the domestic market," Akbar Mirza-Hosseini, car industry expert and the Vice-chairman of the board of directors at Iran's Rakhsh Khodro Diesel Company, told Tend, commenting on the need for boosting the automotive industry.

Akbar Mirza Hosseini believes that, the involvement of state players in the management of the leading Iranian carmakers is among the main shortcomings for the country’s largest non-oil sub-sector of economy.

Landscape of Iran’s auto industry

About a year and half after the world powers removed nuclear related sanctions on Iran, including a bill that banned exporting car parts to the Islamic Republic, the Middle Eastern nation’s automotive industry has witnessed a fresh surge in its output.

Nonetheless, the flow of foreign cars to the Iranian market has also dramatically hiked over the past year. According to the latest statistics by the Industry Ministry, domestic carmakers, over the first four months of the current Iranian year (starting March 20), produced over 434,000 vehicles, indicating 17.6 percent increase year on year, with the lion’s share going to Iran Khodro and SAIPA who largely enjoy the state support.

Nevertheless, a large part of the domestic cars were manufactured in cooperation with foreign carmakers.

French Peugeot accounts for 32.4 percent of domestic cars produced in collaboration with Iranian carmakers. In the meantime, China has a 14.9 percent share in Iran’s domestic production with Renault, which has already grabbed a 10.4 percent share of Iran’s domestic production.

On the other hand, those foreign carmakers that cooperate with Iran play a key role in increasing the volume of car imports to the Islamic Republic.

According to the customs statistics, Iran has imported 23,000 cars in the first four months of the current fiscal year, up 55 percent compared to same period of time last year.

Those carmakers who plan to launch JVs in Iran, first export their products to the Middle Eastern nation in order to examine the market.

However, most of the agreements on forming JVs are too slow pushing forward.

Mercedes-Benz, Peugeot, Renault, Citroen, Scania AB and Hyundai Motor Company were among those automobile manufacturers who reached business agreements with Iranians and some others such as Volkswagen and Skoda Auto made breakthroughs in negotiations to enter country’s huge car market.

Foreign producers say that their obligation to produce 40 percent of the required car parts in Iran has slowed the efforts aimed at launching their JVs, claiming that Iranians are incapable of producing highly quality spare parts in the country.

Renault Joint Venture

JV in the first phase is expected to add 150,000 units to Renault’s annual production volume in Iran, with an estimated investment of 660 million euros. The first products of the joint venture would hit the market by early 2019.

Some 60 percent of the shares of the JV belong to Renault and 40 percent to Iran, which is equally owned by IDRO and private sector partners.

Under the contract the production of gearboxes, chassis and other spare parts will be carried out in Iran and under a separate contract with a Belgian company the production of automatic transmission systems will take place in the country as well.

The joint venture contract, which is projected to create about 3,000 job places, has envisaged exporting 30 percent of its output.

The Renault brands of New DUSTER and New SYMBOL will form the main output products of the joint venture.

The agreement urges the French carmaker to help Iranian car part markers to improve the quality of their output.

Meanwhile, Renault is expected to launch a research and development hub in Iran, aimed at the development of nation’s human resources.

Impact of joint ventures on Iran’s car industry

Although Akbar Mirzahosseini criticizes the leading carmakers for assembling the cars of foreign giants and failing to manufacture their own brands, he believes that setting up joint ventures with international leading companies would play an important role in boost of the industry’s performance through the acquisition of new technologies.

Whatever the outcome of Iran’s cooperation with the French carmaker will be, it will very likely have a positive and lasting impact on the nation’s automotive industry, as a third player emerges in the Islamic Republic’s automotive industry.