With an investment of 1.2 trillion rials ($28.5 million), Iran’s first die-casting mold factory has started operations in the northwestern city of Tabriz. The project aims to cater to the needs of Iran’s growing auto industry and curb the country’s overreliance on foreign suppliers.
The production facility has been set up by the Iran Tractor Forging Company (ITFCO) and the financial support of Iran Khodro in a 1,800-square-meter industrial shed.
ITFCO’s board chairman Majid Buveili says, “The factory will obviate the need for imports of molds for engine parts such as cylinder heads and cylinder blocks,” reported Entekhab news website.
The production facility was inaugurated on April 24, during a ceremony attended by Industries Minister Mohammad Shariatmadari, CEO of Iran Khodro Hashem Yekezareh and the online attendance of President Hassan Rouhani via a video conference. The factory is gradually going into full swing.
According to Buveili, the cost for the establishment of the factory has amounted to $28.5 million. The unit has generated 80 direct and 200 indirect employment opportunities.
The general concept of the plant first germinated in 2015. ITFCO has collaborated with unnamed German and Italian firms to open the production facility equipped with 27 machines for high-pressure and gravity die-casting.
Buveili says, “The whole process took 14 months from inception and import of the machines to inauguration.’
He adds, “The key idea behind the project is to localize the production of vehicles as much as possible to eliminate the country’s reliance on foreign-made parts.”
The import of auto parts places a heavy strain on Iran’s foreign currency reserves. According to the company’s official, the operation can help mitigate the outflow of foreign currency.
Statistics released by Islamic Republic of Iran Customs Administration show that during the first month of the current fiscal which started on March 21, in terms of value, auto parts had a 7.6% share of the goods entering Iran through legal channels, topping Iran’s import bill.
The figures indicate a 189% year-on-year growth in auto parts imports. This is not something out of ordinary and testifies to local carmakers’ overreliance on foreign suppliers.
Well-Timed Opening
The factory was inaugurated before US President Donald Trump pulled out of the 2015 nuclear deal which had eased economic sanctions on Iran in return for it curbing its nuclear program.
The US president’s abrupt move has given rise to uncertainty over the fate of Iran’s joint ventures with European companies, including the deals forged between Iranian carmakers and their foreign peers.
One day after Trump reneged on the deal, the French carmaker and owner of Peugeot brand PSA Group said they are monitoring the evolution of the matter and are waiting for the EU’s official position on the topic.
Major PSA brands Peugeot and Citroen respectively have entered into joint venture agreements with Iran’s largest carmakers Iran Khodro and SAIPA. PSA Group’s arch-rival Renault also has strong ties with Iran.
With the details on the new sanctions that will be imposed on the country still obscure, industry observers speculate that the auto industry can be hit hard if previous economic restrictions are to be imposed on Iranian automotive companies.
Many have praised the opening of ITFCO’s new factory saying that it can take the edge off some possible upcoming losses.
Car Prices
In addition to decreasing Iranian carmakers’ reliance on foreign suppliers, the establishment of such production facilities can enable local firms to cut costs and employ a more competition-based pricing strategy.
Many more factories like the one that recently opened are needed to turn the auto industry into a self-supporting business that can withstand outside shock waves, but ITFCO’s move has broadened Iran’s auto industry’s prospects.
Amendments to auto import rules, forex fluctuations and a sharp hike in prices of raw materials have all contributed to a significant surge in car prices and a stagnant auto market.
The rise in prices began when the government of President Hassan Rouhani introduced new rules governing auto imports, according to which, depending on engine capacity, import tariffs on vehicles increased by 15-65%.
This marked the beginning of an upward trend in car prices, with forex fluctuations adding fuel to the fire by boosting the price of raw material which in turn drive up the cost of auto parts.
The role played by avaricious dealers cannot be ignored whose involvement helps the premature increase in prices.
Market observers speak of similar circumstances in 2012 when the cost of purchasing vehicles skyrocketed due to the imposition of sanctions and a bullish foreign currency market.
The administration has currently unified the US dollar exchange rate at 42,000 rials. While businessmen were skeptic if the government would be able to allocate 42,000-rials-dollars to importers, auto part makers announced on Friday that they have received the currency from authorities. The news might spur the auto market and alleviate customer concerns.
