Iran’s Automotive Industry Overview

Currently, Iran’s automotive sector is the second most active industry of the country, after its oil and gas industry. Iran has become the largest vehicle producer in the region by producing 46% of all cars produced in the region and its neighbouring countries. During the past decade Iran’s automotive industry has had an increasing trend; car production has increased 445% between 1998-2008. Many new automotive manufacturing companies have been established as well as a relaxation of the Iranian government’s protective policies. Some sources suggest Iran will emerge as the world’s sixteenth largest automaker by 2012. In 2007-2008 there were 7.17 people per car produced, while in 2001-2002 this figure was 16.8 people per car production Iran. The increase in car production is mostly attributed to the strong demand in the market because of population growth, urbanization, Iran’s emerging youth population as well the increase in presence of women in the society, etc.

There are currently 13 public and privately owned automakers in Iran of which many of them have subsidiary companies producing various types of vehicles; there are 28 automotive manufacturing units throughout Iran. Iran Khodro and Saipa are the largest domestic vehicle manufacturing companies. The Iranian manufacturers currently produce six different types of vehicle, including passenger cars, 4WD, trucks, buses, minibuses, and pickup trucks. According to the latest statistics in 2008 provided by the Ministry of Industries and Mines, there are exactly 9,965,734 vehicles in the country. The table below demonstrates the number of units manufactured in each category from 2000 to 2008.

Total Automotive Production (1998 – 2008)

Source: “Automotive Industry”, Supply Automotive Parts Company’s (SAPCO) monthly publication

The Iranian automotive industry produced 1,146,269 vehicles in 2007-2008. Such an increase in production is vital for Iran where more than 25% of the cars in Iran’s automotive fleet are over 20 years old. Most of the produced vehicles over the years are passenger cars as well as in 2007-2008.

Source: “Automotive Industry”, Supply Automotive Parts Company’s (SAPCO) 

The 28 automotive manufacturing units mentioned above are mostly subsidiaries of the 13 main publicly and privately owned automotive manufacturers. Some vehicle manufacturing companies such as Kish Khodro which was Iran’s first private auto manufacturing company, first started out as private companies but was later bought by government entities. In this particular case, Kish Khodro was bought by the Bank of Industry and Mines of Iran. The manufacturing units that have accounted for production for the first nine months of the Iranian calendar during 2007-2008 are listed in the two tables below.

Iran Khodro and Saipa have the largest market share controlling 96% of the market. The other car manufacturers not specified as belonging to a particular manufacturing group such as the Bahman Group, Kerman Motors, Kish Khodro, Runiran, Traktorsazi, Shahab Khodro, etc. together produce only 3.7%.

Source: “Automotive Industry”, Supply Automotive Parts Company’s (SAPCO) 

Iran is also a large producer of automotive spare parts, The Iranian automotive parts industry consists of approximately 1200 companies, which include those affiliated to vehicle manufacturers as well as independent firms. The industry consists of two primary sectors: Original Equipment Manufacturing (OEM) suppliers, which produce parts for auto makers, and After-Market Parts Manufacturers (AMPM), which produce replacement parts for vehicles.

Other than domestically produced vehicles, there has been an influx of imported vehicles particularly passenger cars, since 2003. The government lifted a 10-year ban on car imports in 2003, and gradually lowered the high import tariff of 147% to 90%. Based on data from the Islamic Republic of Iran’s Custom’s Authority, in the year 2007-2008 alone, US$ 2,058,016,004 worth of all types of motor vehicles has been imported to Iran. In general, passenger cars have seen the most increase in growth; 271% increase in the number of passenger cars imported from 2005 to 2008.  

During 2007-2008, 42,461 passenger cars with the value of US$ 877 million was imported Iran. Many major foreign companies are currently present in Iran such as  Toyota, Peugeot, BMW, Mercedes Benz, Volkswagen, Hyundai and Mitsubishi to name a few. These companies are either present through joint ventures with domestic car manufacturing companies such as Iran Khodro-Peugeot, Saipa-Renault, Aidco Iran- Proton of Malaysia, Khodrosazan Bam-Volkswagen etc. or have authorized representatives such as BMW Iran. So far only six foreign companies have secured the necessary permits to import cars to Iran. These companies are Mercedes Benz, Toyota, BMW, Hyundai and Mitsubishi. The brands of passenger cars available to the Iranian market are listed in the table below.

Foreign companies, who wish to export their cars to Iran, should at first establish one repair shop for each 500 cars and to guarantee to provide spare parts and repairs for ten years. Having the official representation of foreign companies will not lead to an exclusive right in importing the products of that company, since official representation is only limited to repairs and services. The auto manufacturers are required by law to be ISQI certified, which involves passing various tests and inspections that comply with the 55 European standards.

Even though Iran’s government has in the past, and is still protecting the automotive industry it is trying to promote export by eliminating barriers; reducing and even withdrawing some tariffs and taxes, and has had some degree of success. Theoretically, the government’s policy is to protect the automotive industry, but not at the expense of quality. Automakers are to use premium parts in their production and if parts are not produced domestically, they can import with new and eased tariffs.

At the moment there is one automobile available for every 11.7 people in Iran the demand for automobiles, particularly passenger vehicles, far exceeds the supply. In fact, Iran’s demographic profile is a source of new growing demand. Other than Iran’s you the factor (70% of the population under the age of 30), there is a re emergence of a wealthy upper class and a growing niche of middle class entrepreneurs who look for their own status symbols. These are all signs of capacity for more automobiles.

Iran’s strategic location and low costs of both natural and human resources that Iran benefits from make it very attractive for foreign investors.  In fact, many foreign companies currently active in Iran are here not only to take advantage of the opportunities for inexpensive assembly projects, but also use the country as an export base for the Persian Gulf states and Central Asia.

Other than car production there is also a strong demand in the market due to population growth, urbanization, Iran’s emerging youth population, the increase presence of women in the society.