Major Iranian automaker Iran Khodro (IKCO) has slashed capital flight by $210 million through localization of vehicle parts in the last two Iranian years (March 2019-21).
Farshad Moqimi, CEO of the company, said IKCO has implemented 135 auto parts localization and vehicle design projects in the past two years with the help of Iranian auto parts manufacturer SAPCO.
“The projects have gradually curbed IKCO’s dependency on foreign suppliers,” Mehr News Agency quoted Moqimi as saying.
According to IKCO’s chief, the company has produced 2,000 sets of vehicle frames and mechanical tools, saving up to $22 million with the support of industrial units affiliated with the Defense Ministry and knowledge-based companies.
“The company used to spend close to $360 million on the import of parts every year. Fortunately, indigenization efforts can raise the amount of saving to $248 million per year,” he added.
Moqimi called on banks to extend support to parts makers for upgrading their machinery and asked relevant authorities to cut their tax rates.
“Encouraging local parts makers to manufacture high-tech imported components are on IKCO’s agenda,” he said.
SAPCO Projects Underway
In line with expanding local production, SAPCO is planning to produce vehicle frames, parts and mechanical tools for 630,000 IKCO cars in the current Iranian year (started March 21).
The plan is aimed at promoting localization in the sector, reducing auto part imports and utilizing the local industrial, scientific and technological capacities.
In fiscal management, SAPCO has prioritized the revision of pricing mechanism and integration of agreement management by employing modern fiscal mechanisms and improving liquidity flow in auto parts sector.
In addition, SAPCO is working on 131 localization project in collaboration with knowledge-based companies. Projects worth 1 trillion rials ($4 million) are expected to cut capital flight by $150 million annually.
The parts maker also has 21 joint projects with the Defense Ministry, which are projected to save up to €33 million per year.
SAPCO has signed 23 collaboration agreements worth 2 trillion rials ($8 million) with the Islamic Revolution Guard Corps Aerospace Force. The deals are expected to slash imports by $46 million per annum.
Car Production Surges
State-backed automotive tech localization efforts and the strong role of knowledge-based and technology firms in the past several months have boosted the production rate of domestic automakers.
The surge is evident in the sector’s 4.33% rise in output registered in the last Iranian year year-on-year.
According to a report published by Iran’s Securities and Exchange Organization on Codal.ir, Iran produced 37,451 more cars compared to the year before. No data have been released on commercial vehicle production.
Industry insiders believe that this could not be achieved in the absence of government support and the tech ecosystem.
Late August, the Industries Ministry said it is planning to invest 40 trillion rials ($160 million) in a research and development project for localizing key auto parts.
Mehdi Sadeqi-Niyaraki, a deputy industries minister, said several firms and state entities have joined forces to implement the project.
Major Iranian car companies are to spearhead the project by tapping into the potentials of local tech firms and knowledge-based companies, he added.
The Defense Ministry and the Islamic Revolution Guards Corps Aerospace Division will also contribute to the project. The ministry has lately launched projects to indigenize auto parts production and IRGC’s aerospace arm has become active in the field of automotive engineering and R&D over the past few years.
In June 2019, the Defense Ministry began to share its technological capabilities with local car companies. Since then, the production of homegrown substitutes for key imported car parts was placed high on the agenda.
The ministry helped produce domestic counterparts for 35 key auto parts in Iran to curb the industry’s reliance on the global supply chain.
Recently, the Iranian Army also joined the Defense Ministry in backing similar endeavors of domestic automakers.
Deputy Coordinator of Iran’s Air Force Brigadier General Mehdi Hadian told reporters that the army’s Air Force possesses high-tech equipment to support the domestic auto sector.
“The linkup can help mobilize this potential and fill the gaps on both sides,” he said.
In the face of economic constraints created by US sanctions in 2018, the auto sector focused on self-sufficiency in the production of auto parts, especially high-tech components.
These efforts have resulted in slashing the import of auto parts and saving foreign currencies. However, several fiscal issues are yet to be settled in the auto sector.
Tough Times
According to official data, Iranian automotive companies are in the red, owing parts makers 430 trillion rials ($1.72 billion), Reza Rezaei, a member of Iran Auto Parts Makers Association, said.
He added that parts manufacturers are struggling to finance their operations and urged automakers to pay at least part of the debt as soon as possible.
Rezaei noted that the parts manufacturing sector is a strategic component in the auto sector, which can help materialize localization goals.
“They deserve more support from the government, but unfortunately the state has paid little attention to the sector,” he added.
Criticizing cumbersome regulations in the banking system, Rezaei said parts makers are having a tough time in getting bank facilities.
“Even when we are trying to import raw materials, customs officials are reluctant to cooperate, which makes import procedures more difficult,” he said.
Lawmaker Ali Haddadi echoed these comments, saying rules set by the Central Bank of Iran also hamper automotive development.
Haddadi said restrictive regulations should be modified and the government should open up its coffers to the auto sector.
