Thanks to sanctions, Iran finally builds its own cars

Iran's auto sector has started standing on its own feet after years of reliance on imported car kits which foreign companies stopped supplying when the US reimposed sanctions on the Islamic Republic in 2018.

Minister of Industry, Mine and Trade Alireza Razm Hosseini said last week that the total value of imported contents used in car manufacturing had been cut by $2.5 billion – a figure which is enormous at a time of severe foreign exchange crunch due to the draconian sanctions.   

"Thanks to the efforts of automakers and component makers, the $4 billion dependence of the automotive industry on foreign companies has been reduced to $1.5 billion today, and the depth of internalization has increased," he said at a signing ceremony.

This is down to the continuation of sanctions and Iran's attention to internal capacities in manufacturing car components, secretary of the Iranian Auto Parts Manufacturers Association (IAPMA) Arash Mohebinejad said on Tuesday.

"The achievement is due to the blessings of sanctions, and with the cooperation of auto parts manufacturers and the support of car manufacturers, we have succeeded in localizing a large part of car components," he told IRNA news agency.

According to IAPMA head Mohammad Reza Najafi-Manesh, each Iranian-made car now uses up $1,500-$1,700 of foreign exchange to complete, saying the figure can be cut further with government support for localization and reduction of foreign content.

"If CKD (completely knocked down) or assembled production is included, the use of foreign exchange will rise to $6,000-$8,000 and in case car imports are allowed, this figure will swell to $10,000-20,000 per unit," he added.

Iran Khodro (IKCO) and Saipa are the two largest local manufacturers, which have picked up the slack since France’s Peugeot and Renault exited Iran along with other international companies in the wake of US sanctions in 2018, creating a supply crunch which saw car prices vault to unprecedented highs.

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As the fallout from the sudden exit of foreign companies began to roll in, the two car makers pooled up local manufacturers of parts to produce Iranian-made vehicles. The defense ministry joined in to manufacture hi-tech auto parts which Iran used to import. 

The auto industry forms the second biggest sub-sector of the economy behind oil, accounting for some 10 percent of the gross domestic product and 4 percent of employment.

More than 100,000 people are employed by IKCO and Saipa, while another 700,000 Iranians work in industries related to car manufacturing.

When the Trump administration reimposed sanctions on Iran in August 2018, it reserved Washington’s first hammer blow for the car industry to hurt as many Iranians as possible.

However, the US pressures forced domestic manufacturers to mobilize their resources to fulfill some of the tasks which were an exclusive competence of foreign companies.

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Local manufacturers are now producing a wide range of parts such as automotive immobilizers that allow the engine to start only with the vehicle's authorized key, electronic control units, oxygen sensors, electric seats, electric steering, six-speed automatic transmission, polymeric materials, modulators, injectors, airbags, multimedia, direct current (DC) motors, all types of electrical sensors and digital front amplifiers.

A deputy industry minister has said Iranian automakers will produce more than 1.3 million cars this year, a 50 percent jump in production in the face of US sanctions.

Despite the localization, Iran's auto sector is still saddled with serious challenges for sourcing some high-tech components, such as semiconductor chips, Mohebinejad said.

The chips are a crucial component for electronics in modern cars, including touchscreen displays as well as driver assist and other safety systems.

The shortage of semiconductor chips is basically a global problem which is the result of the coronavirus pandemic and the economic war between China and the United States.

The world relies on Taiwan for chips, but this dominance leaves the world in a vulnerable position as the island is a focal point of tensions between the US and China, which claims Taiwan as its own.

"Part of the problem is internal and is related to insufficient liquidity, carmakers' debts to parts manufacturers, customs problems, and the non-production of some items, including semiconductors, ICs (integrated circuits), microchips and electronic circuits," Mohebinejad said.

"These components are produced in multibillion circulations and only in a few specific countries, so that today no country independently and internally produces ICs, microchips and electronic circuits." 

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