Promising Outlook for Iran Khodro (IKCO)-LG Electric Car Deal

 Promising Outlook for IKCO-LG Electric Car Deal Promising Outlook for IKCO-LG Electric Car Deal

Iran Khodro's CEO Hashem Yekezare recently confirmed a South Korean press statement that his company is in talks with LG International Corp to jointly develop electric-powered vehicles.

The earlier news, which Financial Tribune reported in May, marks a turning point for Iran's largest automaker and assembler, which shows that it is actually thinking beyond CKDs and SKDs for the first time.

The long-term plan has not been made public by either side and the initial press release seems to be the only news on the development.

When LG Iran was originally contacted for further information, the company's Tehran office was unaware of the deal, but was open for questions.

In his announcement of the proposed deal, Yekezare said "negotiations are underway", according to the latest Bloomberg report on the deal.

The director also said he hoped the deal would be ready by this autumn.

From LG's side, a company spokesman said, “We are currently carrying out plans to develop electric-powered vehicles and set up charging infrastructure in Iran.”

The company declined to give further details before the deal closes.

As per the proposed deal, LG would supply batteries and other components to the automaker and establish charging stations across Iran.

IKCO would build the body of cars produce 60,000 vehicles by 2023, according to Bloomberg's report.  

  IKCO's Plan Rational

The deal is not ahead of its time either, as Iran's pollution problems are well documented by international agencies and with the expected increase in car sales over the next decade, the pollution problem is only likely to get worse as a new generation of car buyers emits more pollutants in the air.

The deal would also push Iran Khodro well past the position of an assembler of old French cars too, as their entire production line would need to be overhauled to accommodate such a change.

Obviously, cars like the Peugeot 405, which has been produced in Iran since the 1990s are not going to get an electric engine–well, hopefully.

IKCO already announced it plans to produce several new products in cooperation with PSA Groupe's Peugeot brand. These possibly new global machines could also have LG's battery technology, as part of Peugeot's and Renault's offer to develop them.

The two French car manufacturers will tap into the new production line for exporting new vehicles produced in Iran to Central Asian and Middle Eastern markets.

The initial signs are positive, but as with any of these large-scale deals, there remain several dozen pitfalls to avoid before both sides can say they are going ahead with any new battery deal.


  LG's Move Beyond Electronics

The proposed IKCO deal would not produce the cars under the LG name, especially in Iran with local naming nomenclature being as strong as it is.

However, it would note a discernible push by the electronics maker into a growing field for them. They would also be the first company to make such a move in Iran.

LG Chem, the battery subsidiary of the larger company, is the key player in negotiations with IKCO, and they have been making a move well beyond producing mobile phone and laptop batteries in recent years.

LG Chem has already established itself in the European markets, with a new facility already signing several deals with global carmakers. IKCO, is well behind in this deal, according to several reports from abroad.

According to a report from Seoul, the lithium-ion battery cells will later be mounted on electric cars of around 20 global automotive makers, including Ford, Volkswagen and Hyundai Motor. This will basically give the South Korean company the lead against companies like Tesla, which are developing their system vertically with their own battery production facility.

The deal is good for IKCO also, as around 1,100 researchers work for the Seoul-based battery maker, many of which would likely pass on their skills to Iranian engineers.  The annual R&D investment of LG Chem for secondary batteries stands at 250 billion won ($209 million), up from 10 billion won during the same period, according to the Korean Herald.

  No Sign of Competition

Although SAIPA has not directly stated so far, they too are likely to team up with a company like LG Chem to develop a new line of lithium-powered vehicles.

Through their ongoing cooperation with Chinese companies, which are looking to develop their own electric vehicle offering, SAIPA will be pushed by market demand, or even impending legislation to offer a new range of electric vehicles, not a lithium-powered SAIPA Pride, by any chance.

As Iran moves toward a cleaner car manufacturing business, several car companies are also likely to enter the burgeoning field. Foreign automakers, mainly Chinese, may also possibly push their own electric vehicles in the Iranian market.

Chinese companies have stated several times that they are happy with the growth of their brands in the Iranian market and with announcements by Beijing-based BYD, a major manufacturer of electric vehicles entering Iran currently, the race looks set to intensify in recent years.