With the domestic development and production of 70 key auto parts since July 2019, Iran’s automotive industry has curbed capital flight amounting to €127 million, said a deputy industries minister.
The initiative to increase the share of domestic auto parts in local production has been launched by the Industries Ministry.
Several meetings have been held in the past few months between government officials and industry insiders in this respect, Saeed Zarandi also told Tasnim News Agency.
According to Zarandi, during these meetings, deals were forged with domestic manufacturers for the production of 68 key auto parts and several high-tech items imported in the past.
“The move is aimed at reducing the auto sector’s dependence on foreign resources, helping the government protect its currency reserves and curbing capital flight,” he added.
Zarandi said the ultimate goal is to save up to €400 million annually through the localization of more auto parts, for which two meetings will be held soon.
The ministry’s initiative also applauded similar moves by carmakers themselves.
Major local carmaker Iran Khodro (IKCO) has signed several agreements with domestic industrial units and small- and medium-sized enterprises to mass produce 32 key auto parts, which will save up to €16.7 million annually, according to Farshad Moqimi, the company’s CEO.
Moqimi expressed hope that the efforts will yield sustainable benefits for the domestic auto industry.
Earlier in December 2019, Moqimi said the company will utilize the technical and engineering expertise of eight industrial companies affiliated to the ministry to curb the auto industry’s reliance on imports.
“The projects will become operational, as soon as the agreement's terms and conditions are finalized,” he added.
Defense Ministry’s Role
Iran's Defense Ministry had also undertaken a share in the initiative by signing a deal in December 2019 with local car manufacturing company SAIPA to curb the auto sector's reliance on foreign parts.
Iranian car companies depend on auto parts imports, especially key electronics, for producing vehicles. Following the imposition of harsh US sanctions against Tehran, the local firms’ ties to the global supply chain were disrupted and the import of parts began to trickle.
Defense Minister Amir Hatami signed an agreement with SAIPA to bolster collaboration in research and development, design, technical monitoring, safety standards and localization of parts.
Seyyed Javad Soleimani, CEO of SAIPA, said, “With the Defense Ministry’s help, domestic substitutes for 35 key auto parts are to be produced in Iran to curb the industry’s reliance on the global supply chain.”
Soleimani noted that work will soon be started for the modeling and mass production of 16 items, while prototypes of the remaining 19 parts will be produced by the end of the current Iranian year (March 2020).
Pointing to the fact that 23% of auto parts used in SAIPA cars need to be imported, Soleimani said, “If the agreement with the ministry is fully implemented, the localization of parts manufacturing will prevent the capital flight of $300 million per year.”
Other Deals
The Defense Ministry has been helping the local auto sector to bolster its productivity and curb reliance on foreign auto parts suppliers.
“In early June 2019, the ministry started to share its technological capabilities with local car companies, IKCO and SAIPA. As per the move, with the ministry's support, homegrown substitutes for key imported car parts are expected to be produced in Iran to curb the industry’s reliance on the global supply chain,” Alireza Badkoubeh, a deputy director at SAIPA, said.
IKCO is also strengthening ties with Defense Ministry-affiliated firms by planning 23 auto parts production projects. This is the company’s newest move to curb the sector's dependence on imports.
Sanctions' Effect
Following the reimposition of US sanctions against Tehran last summer, ties between Iranian car companies and international auto part suppliers were disrupted.
Almost all partners of local carmakers suspended their Iran operations. Some of the automotive firms that withdrew from the Iranian market are Renault, Peugeot, Citroen, Volvo, Daimler and Hyundai.
With sanctions taking a toll on Iran’s international banking relations, local car companies can hardly purchase parts from smaller market players and intermediaries.
All these have led to a sharp fall in the domestic car output. Officials believe the mobilization of domestic potential and localization of the sector can put a cap on the shortcomings.
