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The number of Chinese cars assembled by IKCO in seven months to October increased seven-fold compared to a year ago.
The number of Chinese cars assembled by IKCO in seven months to October increased seven-fold compared to a year ago.

Localization Rules a Tall Order for Chinese Carmakers, Partners

The government says by the end of the current fiscal in March 2018, at least 40% of the vehicle parts used in joint ventures with Chinese companies should be manufactured in the country
In recent years most local automotive companies have signed production deals with Chinese firms. According to Ministry of Industries data, in the first seven months of the current fiscal to October, 117,709 cars were produced/assembled through the deals

Localization Rules a Tall Order for Chinese Carmakers, Partners

The government has issued a new mandate obliging Chinese carmakers in Iran to increase the share of locally manufactured parts in their vehicles.
Deputy Minister of Industries Mohsen Salehinia says, “By the end of the current fiscal [March 2018], at least 40% of the vehicle parts used in joint ventures with Chinese companies should be manufactured in Iran. If the companies fail to comply with the rules the government will consider their cars completely-built-up imported units,” the Persian-language newspaper Donya-e-Eqtesad reported.
Auto imports tariffs in Iran are over 100% while import duties on spare parts vary between 15-20%.
Prior to the announcement, Chinese carmakers, whose numbers are increasing rapidly, were exempt from the general ‘localization’ rules to a certain extent. Chinese vehicles were ‘produced’ with less than 20% localization, which according to industry insiders included car paint and tiers — and in some rare cases the vehicles’ interior trim.
It appears that managers of the Sino-Iran auto joint ventures have taken the new government ruling in their stride. None of the companies have complained and one — BYD’s local partner Karmania — said, albeit curtly, that the company would comply.

 Issue of Cost Effectiveness
Salehinia said “Chinese carmakers should overhaul their operation in Iran, and increase production.” He was reacting to oft-mentioned protestations by companies that low output rates render localization unfeasible.
Earlier in August and in face of mounting criticism by the local media about Chinese carmakers meager localization rates, CEO of Chery’s local operation Bahram Shariat, said, “The production rates do not reach the feasibility threshold, therefore, localization and manufacturing auto parts in Iran is not cost effective.”
Elaborating the point, he says, “Many foreign vehicles produced in Iran simply do not reach the minimum rollout rate that is over 100,000 units per year.”
Each model needs a minimum production rate of 100,000 units if suppliers want to get involved. Should that not be the case, the price of locally produced parts will be over and above the imported product, the Chery official said.
Industrialists and economic experts have often called on Iranian companies in general to find better ways to make things so as to counter their worsening cost advantage. One unacceptable stance almost always made by producers is that they “cannot afford to manufacture” this or that item at a certain price because of high overheads.
 Overview
In recent years many local automotive companies have signed production deals with Chinese companies. According to statistics released by the Ministry of Industries, during the first seven months of the current fiscal that started in March, 117,709 cars have been produced/assembled through the deals indicating a 70% y/y increase. The vehicles have a 15% share in Iran’s auto market.
Iran Khodro has two separate deals with China’s Haima Automobiles and Dongfeng Motor Corporation. During the seven-month period, IKCO assembled 23,674 Chinese-derived cars — 6% of the company’s total output. The number of Chinese cars assembled by the company has grown seven-fold compared to last year.
IKCO’s arch-rival, SAIPA, assembled 33,324 cars in collaboration with Changan, Zotye, and Brilliance — a 75% year-on-year increase.
Chery’s local operation — active under the brand name Modiran Vehicle Manufacturing Co. — also reported 37% growth in total output. The company assembled 38,303 cars during the period.
Market observers are of the opinion that the new government mandate is targeted at decreasing Chinese carmakers’ share in Iran and create a bigger space for major French companies that have signed contracts to produce cars in collaboration with local firms.
Whether or not the Chinese increase the share of locally-made parts in their cars remains to be seen. If they are in breach, they will subject to higher tariffs, which by extension means higher prices for car buyers. This in turn should give the French automakers a competitive edge.
Renault, Peugeot, and Citroen have signed joint venture deals with local companies over the past two years and their cars are to arrive in the local market by the end of 2018.

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