BMI Industry View
The medium-term outlook for Iranian auto production has improved significantly
since our last quarterly update, reflecting the temporary deal reached between
US and major powers over the future of its nuclear programme in November
2013. Iran and the 5+1 powers (the United States, Russia, China, France,
Britain and Germany) clinched an interim deal on the slamic
Republic's nuclear programme on November 24, following four days of
negotiations in Geneva. Under the agreement, hich will last for six
months while a more permanent and comprehensive settlement is found, Iran will
curb some of its uclear ctivities in return for an immediate gain
of approximately US$7bn in sanctions relief. US President Barack Obama
called he deal 'an important first step toward a comprehensive solution
that addresses our concerns'.Should a permanent eal be struck in 2014 -
and there is no guarantee that this will happen - then there is scope for
sanctions on Iran's key oil ector to be lifted, which would be a game
changer for the domestic economy and, by extension, demand for new cars
from ranian citizens.
Already, French carmaker Renault has announced that it plans to resume
the export of car parts to Iran. The company is awaiting clarification on the
relaxation of trade sanctions against the country. Clarification of the rules
is expected around January 2014. Moreover, while the details of a deal to ease
sanctions on Iran are still to be finalised, we believe that fellow French
carmaker PSA Peugeot Citroen is already in line to be a major
beneficiary. Having been one of Iran's leading foreign brands before sanctions
were tightened, a return to the market for Peugeot would help to offset the
ongoing slump in the group's European business.
Among domestic automakers, Iran Khodro Company (IKCO) is also likely to
benefit from the potential return of its former partner Peugeot,
although the domestic carmaker had been making progress i producing its own
components for models, such as the Peugeot 206, following the French firm's
withdrawal. Local production of Peugeot models in September and October 2013
topped 10,000 units a month for the first time in three years. According to
data from the Iran Vehicle Manufacturers Association, the Peugeot Pars claimed
second place in terms of output in October 2013, with 10,533 units produced. In
total, we still forecast a 50% decline in vehicle production in 2013, however.
Another positive response to the deal for the wider industry was the 2% appreciation
of the rial on the news that an agreement had been reached. BMI has previously
highlighted the weakness of the rial as another source of pressure on domestic
vehicle sales, which means that any further strengthening in the currency would
be positive for consumers. That said, this initial strengthening is a drop in
the ocean compared with the value lost over the last year or so and we would
need to see further progress for this threat to sales to be totally overcome.
Indeed, there remains a great deal of 'wait and see' sentiment in the industry,
until the full details of future operating in the Iranian market have been made
clear. South Korea's Kia Motors, which had a partnership with domestic
producer SAIPA until it withdrew from the market in 2010, said it will
wait for more information before commenting. Germany's Daimler, which
used to have a 30% stake in a diesel engine joint venture with IKCO before
starting to cut back its Iranian business in 2010, said it will 'closely
monitor' the situation, but has no plans to return to the market.
In a further encouraging development, in December 2013 it was reported that
more than US$1bn in foreign direct investment has been approved for Iran's
automotive manufacturing industry, according to the head of the Organisation
for Investment, Economic and Technical Assistance of Iran, Behrouz Alishiri.
Some US $300mn has already been invested. The government wants to turn Iran
into an automobile production hub by extending legal support and special
privileges to overseas investors. Alishiri says the government will provide a
long-term plan to the Iranian automobile sector to help find reliable foreign
investors.