Economy, Business And Markets

IKCO, Peugeot in € 300m Joint Venture

IKCO, Peugeot in  € 300m Joint Venture
IKCO, Peugeot in  € 300m Joint Venture

Details of a recent deal between Iran Khodro (IKCO) and PSA Peugeot Citroën were elaborated by the CEO of IKCO, Hashem Yekeh-Zareh, at a press conference on Tuesday. Apart from shared investment commitments, the new agreement also links Peugeot's export quota to domestic sales. The IKCO head is confident that the new deal, combined with the company's new indigenous designs, will help reduce the share of Chinese cars in the market.

"Iran Khodro aims at supplying cars with higher quality, lower price and better technical specification than the Chinese cars available in the market. We will achieve this goal through partnership with foreign companies, such as Peugeot, Renault, and Suzuki," said Yekeh-Zareh.

According to the CEO, each of the two companies would initially invest €150 million towards establishing a new factory for their joint company; thereafter gradually increasing the amount to €250 million. The joint company's ownership would be shared, with 50 percent belonging to each side.

Yekeh-Zareh also addressed the concerns regarding Peugeot's commitment to export 30 percent of all jointly produced cars to regional markets.

Since the agreement became public, this clause has received much media attention. While some, including IKCO head, claim that the agreement would further accentuate the role of Iran's auto industry in the region; several independent analysts have voiced their concerns that Peugeot might not stick to its commitments, referring to its violations of contract terms in the past.

The CEO argued that as per the new agreement, Peugeot's exports are linked to domestic sales, saying: "The agreement between Iran Khodro and Peugeot stipulates that 30 percent of production is bound to be exported. If Peugeot fails to achieve this target, its share in the domestic sales would be reduced accordingly." This is expected to increase financial burden for Peugeot in case of any violation, dissuading the company from repeating past mistakes.

A team led by member of the parliament's industries and mines commission, Hossein Garoosi, recently returned from a trip to France, where they held talks with Peugeot. Noting that the Iranian team complained to Peugeot about previous contract violations, Garoosi said: "In addition to investing up to 50 percent in the Iranian auto industry, Peugeot has agreed to supply its most recent cars to the Iranian market, in order to help increase production, exports and job creation."  

The IKCO chief also elaborated his company's future road map, pointing that assembling vehicles would constitute a rather small part of the company's total production. "Instead, the company plans to introduce three new models in the next 2-2.5 years."

IKCO has a reputation for depending heavily on assembly or domestic production of foreign models. Throughout its 53-year history, the company only indigenously designed and produced three models, namely Samand, Tiba and Rana.   

This combination of indigenous design and partnerships with foreign manufacturers will allow IKCO to reach an annual production target of 1.8 million by 2025, according to Yekeh-Zareh. "Half of the targeted production would be contributed by non-Iranian cars."

He also stated that IKCO's share in the auto market has increased from 37% two years ago to 54% now, adding: "Our aim is to capture 60 percent of the market."

According to Yekeh-Zareh, IKCO aims to reach a target production of 600,000 vehicles during the current Iranian year, which ends on March 20. He stated: "Although the ministry of industry, mine and trade estimated production of 530,000 vehicles by IKCO during the current year, our aim was to produce 600,000 vehicles and we are hopeful that we can produce another 90,000 units in the remaining days of the year."