1. Iran’s Automotive Industry: Opportunities & Challenges ahead
Bahare Oryani
May 2016

2. 4.
Content
1. The key position of Automotive Industry in Iran’s Economy
(Economic Performance Indices)
2. Iran’s Automotive Market Structure
3. Opportunities and challenges ahead

3. 1. The key position of Automotive Industry in Iran’s Economy
(Economic Performance Indices)

4. 1. The key position of Automotive Industry in Iran’s Economy
Auto industry can be regarded as one of the key industries in Iran’s economy as:
It contributes to 13 percent of the total value added in the industrial sector (2011 statistics);
it provides job for 12 percent of industrial labor force, ranking as the 3rd job generating industry;
Despite pressures of sanctions, economic recession, drastic reduction of investment and having lost 50% of its share in the industry in recent years, the automotive sector has retained its significant position as the third highest job-creating industry in the country.

5. Strong Backward linkages
Iran’s auto industry has strong backward linkages with the other economic sectors. It is ranked as the 2th industry in terms of backward linkages (out of 23 manufacturing industries).
Therefore:
The automotive industry can be regarded as one of the key industrial growth movers in Iran

6. Production of Iran’s Auto Industry (1000 Units)
Economic Sanctions had a serious effect on automotive industry, especially at the time when the industry was ready for major expansion.
Capacity utilization rate (2012): 29%
Tightening of sanctions in 2012 and 2013
Source: Ministry of Industry, Mines and trade

7. Increasing Share of Parts in the Auto Industry Production Value (%)
Ratio of part production value in the automotive industry production value
Source: Statistical Center of Iran
Improvement of the local content in Iran’s automotive industry from 20.6% to 36.3%, despite economic sanction pressures.

8. International Cooperation in auto parts
Source:
Increasing share of joint venture and technology transfers has resulted in the improvement of local content

9. 2. Iran’s Automotive Market Structure

10. Commercial Vehicles (2014)
Regarding passenger cars, there are 6 auto maker companies, 2 of which account for 90.5 percent share of the Auto market.
Passenger Cars (2014)
Commercial Vehicles (2014)
Source: Calculations based on the data form Ministry of Industry, Mine and Trade
Iran Khodro Disel, Sipa Disel and Bahman Group account for 95.3 percent the total domestic production in commercial vehicles and the remaining 4.7 percent is belong to 13 companies

11. Auto Part Production in Iran Dispersion of auto part clusters in Iran
Number of auto part manufacturers in supply chain: 1200
Number of Clusters: 7
Working Capital: 4.5 billion $
Sales (2015): 7 billion $
Share of industrial value added: 9%
Investment: 3 billion $
Source:

12. International Cooperation in automotive (2014)
Dominance of cooperation in the form of license (in passenger and commercial vehicles),
lack of joint venture contracts in the commercial vehicle, against 14 case in the passenger car
Combination of License contracts:
Passenger cars
Source: Calculations based on the data of ministry of industry, mine and trade
China ranks 1st as Iran’s most important partner. It contributes to 36 percent license contracts in Iran with a local content ranging between percent.
Korea has the owns second largest share in Iran's international license contracts (26 percent) with the local content ranging between 14-87%.

13. 3. Opportunities and Challenges ahead

14. 3. Opportunities
The strategic goals set for automotive industry in horizon 2025
a. Light vehicle and auto parts
To produce at least 3 million units, 2 million for domestic market and 1 million for export;
To produce at least 50% of light vehicles with local brands;
To have at least $25 bn worth of parts and components for domestic cars supplied by local producers;
To have at least $6 bn worth of auto parts and components (production lines and parts) exported by local producers
b. Commercial vehicle
To produce at least commercial vehicles, for domestic market and for export
c. To increase GDP share of auto industry to at least 4%;
d. To increase the share of auto industry in the total value added of the industrial sector to at least 20%.

15. 3. Opportunities (cont)
Market Potentials and Proximity: Vast domestic market with a population of 78.1 Million growing steadily as well as quick access to neighboring markets with approximately 300 million inhabitants.
Effective demand in domestic Auto market:
Increase in future demand due to young population of country (70 percent of population under 30 years old);
Necessity to replace old cars (1.6 million auto with more than 20 years old);
Low level of auto ownership in Iran comparing to Persian gulf countries

16. 3. Opportunities (cont)
Using old platform and being ready to use new platforms in order to manufacture modern autos according to costumer taste
Availability of required conditions for entrance of Non Chinese companies in post-sanction period to supply original parts. Under sanctions autos imported as CKD or domestic cars produced by using Chinese parts.
Higher custom duties on CBU and thus increase in final cost that leads to increase in tendency for CKD import and CKD parts

17. Concentrated market structure for automotive market
3. Challenges
large number of auto part manufacturer without economic scale and access to tier1.
Concentrated market structure for automotive market
Complicated Private – Public Structures in many companies (for example 80 percent of Iran khodro’s stocks belongs to 14 companies with private – public stockholders).
Price regulation made by competition council

18. Therefore:
Through international cooperation in automotive industry, it is expected:
Balanced development of automotive industry value chains from auto part production to after sale services,
Enhanced cooperation with leading global companies in the form of joint venture (not just license) and emphasis on export
increase depth of local content. local content requirements in new joint venture contract increase to 40% (Ministry of Industry, Mines and Trade)
Finally, Enhanced outward orientation in auto industry and its participation in Global Value Chains (GVC’s).

19. Thanks for your attention