French auto group Peugeot Citroen last week received a license authorizing it to invest in Iran while the joint venture with Iran Khodro Company should be made next summer, with production starting in 2017.
Jean-Christophe Quemard, regional director of PSA in Middle East and Africa, announced that "this allows us to invest in Iran and is a major step", adding that the next "big step will be the formation of a joint venture in the summer of 2016".
As business relations are warming between Iran and France, PSA has also "resumed deliveries of parts" recently, which was interrupted four years ago, France's Challenges reported.
During President Hassan Rouhani's visit to Paris, the French automobile group signed an agreement to create a joint venture with IKCO last January. The goals were to produce three models: Peugeot 208, 2008 and 301 by the end of 2017.
The vehicles will be manufactured in the IKCO's plant, outside Tehran, which will be modernized and expanded. With an investment of €400 million over five years, 100,000 cars will be manufactured in the first phase and 200,000 more in the second.
PSA faces bitter accusations from Iranians that that the company abandoned the domestic market back in 2012. For this reason, Peugeot's return comes at a price.
Consequently, PSA has agreed to pay nearly €430 million in compensation to Iran for the sudden departure. The bulk of these damages will not, however, be paid in cash but in the form of free parts, debt relief and free training of local staff.
The company's two models, namely Peugeot 405 and 206, were produced in Iran before western embargos took effect. Peugeot remains popular in the country, occupying a third of the market last year because Iran Khodro has continued to produce the two models during the entire period of the international embargo.
Peugeot 405 was in effect almost entirely locally made and 206 to a great extent. The parts, once provided by PSA, were replaced with Chinese versions.
PSA is not the only French manufacturer present in Iran. Renault has also been manufacturing its Renault Logan Tondar in the country, a restyled Dacia Logan expected to be a low-cost offering that was inflated sixfold because of strong market demand.
Unlike PSA, the firm has it easier as they never stopped sending parts for its Tondar and pickup versions throughout the period of international sanctions. They even launched the Sandero late last year.
The company has imported the Duster 4x4 and plans to manufacture the low-cost Kwid.
The Kwid would be produced initially like the same model launched last September in India. But a four-door sedan and separate trunk and a 4x4 version of the car could also be manufactured.
"We have had very advanced discussions with our partners in Iran," Thierry Koskas, commercial director of Renault said recently.
The company sold 51,500 cars last year in the country, mostly Tondar models. Renault reached a market share of nearly 5%.
"We offer a comprehensive product plan," Koskas said.
Renault is also negotiating a minority stake or even an industrial asset purchase with its partner Pars Khodro. The industrial manufacturing potential projected for Renault, with its two partners Pars Khodro and Iran Khodro, is 250,000 units per year.
The firm says they already have a fleet of 400,000 vehicles plying the streets of the country and aim for 400,000 units in annual sales by 2020.
The Iranian auto market (1.08 million units last year) is expected to double in the next five to 10 years.
