EghtesadOnline: The state-backed automotive tech localization efforts and the strong role of knowledge-based and technology firms in the past several months have boosted the production rate of Iran Khodro (IKCO).
The boost is evident in the company’s 55% output rise recorded in the first seven months of the current fiscal year (March 20-Oct. 21) compared to the year-ago period, the automaker’s website Ikcopress.ikco.ir reported.
According to the data released by the company, IKCO produced 278,000 sedans during the seven months, which is 100,000 more than last year’s corresponding figure, registering a 55% growth in output.
Besides, the month-on-month comparison shows that the automaker recorded a 70% rise in production in the month ending Oct. 21. IKCO produced 69,970 passenger vehicles during the month, while the figure was 41,175 in the previous month.
In addition, the company registered a 186% output rise compared to the seventh month of last fiscal year (Sept. 22-Oct. 22, 2019), when IKCO produced 24,398 sedans.
Industry insiders believe that this could not be achieved in the absence of state support and the tech ecosystem.
In late August, the Industries Ministry said it is planning to invest 40 trillion rials ($140.35 million) in a research and development project for localizing key auto parts.
Mehdi Sadeqi Niyaraki, a deputy industries minister, said several firms and state entities have joined forces to implement the project.
Major Iranian car companies are to spearhead the project by tapping into the potentials of local tech firms and knowledge-based companies, he added.
The Defense Ministry and the Islamic Revolution Guard Corps’ Aerospace Division will also contribute to the project. The ministry has lately launched a number of projects to indigenize auto parts production and IRGC’s aerospace arm has become active in the field of automotive engineering and R&D over the past few years.
Besides, the Defense Ministry started supporting domestic automakers to curb their reliance on foreign parts.
In June last year, the ministry began to share its technological capabilities with local car companies. Since then, the production of homegrown substitutes for key imported car parts was placed high on the agenda.
The ministry helped produce domestic substitutes for 35 key auto parts in Iran to curb the industry’s reliance on the global supply chain.
Recently, the Iranian Army also joined the Defense Ministry in backing similar endeavors of domestic automakers.
Deputy Coordinator of Iran Air Force Brigadier General Mehdi Hadian told reporters that the army’s Air Force owns high-tech equipment to support the domestic auto sector.
“The linkup can help mobilize this potential and fill the gaps on both sides,” he said.
In the face of economic constraints created by the US sanctions in 2018, the auto sector focused on self-sufficiency in the production of auto parts, especially high-tech components.
These efforts have resulted in slashing imports of auto parts and saving foreign currencies.
In early October, IKCO announced that it has curbed capital flight to the tune of €137 million through the localization of 54 auto parts in the first six months of the current Iranian year (March 20-Sept. 21), a senior company official said.
Hamid Moradi, IKCO’s deputy executive manager, noted that this has been accomplished, thanks to the support of industrial units affiliated to the Defense Ministry and knowledge-based companies.
“This is part of efforts to gradually slash the capital flight caused by auto parts imports, which can reach €248 million annually,” he said.
The official added that the implementation of projects will save €13 million for the company in the second half of the current year, reducing IKCO’s annual capital flight down to €150 million this year, which used to exceed €300 million.
Moradi noted that with more than 10,500 technicians and professionals, Iran Khodro is taking strong steps toward “boosting production”, the strategy put forward by Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei, as a solution for all economic and industrial sectors to overcome the current economic headwinds.
According to insiders, the Iranian auto industry can reduce capital flight by $2 billion, if the government increases localization efforts.
Part Makers’ Challenges
Arash Mohebbinejad, secretary of Iranian Auto Parts Manufacturers Association, says the dependency of industries on the international supply chain can decline by bolstering domestic production, although the goal could only be attained with the government support.
He also said IKCO’s progress in the localization of auto parts is thanks to the immense help of the industries and defense ministries, and the constant efforts of major parts makers, as well as production optimization employed by firms.
“While Iranian automakers have been able to curb reliance on foreign suppliers extensively, around 25% of key auto parts still need to be imported. Outdated technologies employed by Iranian carmakers have curbed their localization efforts,” he added.
Since 2018 when the US sanctions were reimposed against Iran, the rial has lost about two-thirds of its value and prices of almost all goods have soared to unprecedented highs. The greenback was trading at 285,000 rials in Tehran on Monday, though it hardly fetched 42,000 rials two years ago.
Criticizing the state’s inefficient management of the ailing sector, Mohebbinejad said the sporadic money injections have so far acted more as temporary sedatives.
“Borrowings cannot solve the underlying issues of auto parts manufacturers and an effective strategy is required to revive the industry,” he said.
“Adding to the problem, contracts between automotive companies and parts makers are pending updates because of the new currency rates. Auto parts are still sold at extremely low prices, which adds to the parts makers’ financial woes.”
Calling on policymakers to modify the deals, Mohebbinejad suggested a 65% increase in parts price to match higher operating costs.