Iran Vehicle Market - Growth, Trends, and Forecast (2020 - 2025)

The Iran vehicle market is expected to grow at a CAGR of nearly 4% during the forecasted period (2020 - 2025)

• Iran faced economic difficulties, due to the sanctions imposed upon it, but still, the country has maintained a per capita income of USD 16,463, which puts it into the category of upper-middle-income nations and favourable nations for the automobile industry. The country also has a favourable demographic structure needed for its fast-paced growth.
• The automobile industry contributes around 10% to the GDP of Iran. The total domestic production in Iran is dominated by two manufacturers, namely Iran Khodro and SAIPA, which account for more than 90% of the total domestic production. Iran's automobile industry is dominated by the passenger car segment, and it accounts for roughly three-fourths of the total market.
• The massive currency depreciation experienced in 2012-2013, had a huge impact on the local automobile industry. As a result, production fell under 1 million units for the first time since 2007. However, the market recovered considerably since then, and it is expected to show modest growth. With the opening up of the markets, the government may be forced to remove the subsidies given to manufacturers, and that may affect the profitability of the local manufacturers. Despite sanctions, Iran has become a powerhouse in automobile manufacturing and represents one of the best markets to invest in for global players, as it has the potential to grow massively once the sanctions are lifted. In 2019, Iran has produced 821,060 automobile units which is decline from 2018 wherein Iran produced 1,095,526. Sharp devaluation of currency followed by sanctions has significantly increased priced of imported cars, which has led to increase in sales of domestic car manufacturers. Increasing disposable income and growing middle class is expected to create demand for new cars in Iran during the forecasted period.

Key Market Trends

Growing Demand for Automobiles

In 2016, the Iranian car manufacturers alone accounted for around 2.2% of the country’s overall economic growth. The automotive industry is projected to form at least 4% of Iran’s economic growth by 2025, if no sanctions are imposed on the country. In 2018, Iran produced more than 1.09 million cars.

The Iranian car manufacturers have re-established their cooperation with European companies, such as Peugeot, Citroen, and Renault. As a result, the automotive industry has grown by nearly 151%. Additionally, a couple of years back, the country presented certificates to foreign car manufacturers willing to open sales branches in Iran. Around 40 foreign automotive manufacturers have already obtained the certificates, and the number is projected to grow over the forecast period. Peugeot partnered with the local leading company, Iran Khodro, to manufacture passenger vehicles. Through this partnership, 200,000 cars are expected to be manufactured in Iran by 2018.

The automotive industry in the country is expected to grow over the forecast period, as foreign manufacturers are striking partnership deals with the local carmakers. In February 2018, Renault sold nearly 15,200 cars in Iran, which is an increase by 175% from the fiscal year 2017.

On an average domestic manufactured car costs USD 2500 whereas imported car is being sold for almost 8000 USD, which is giving competitive advantage to domestic market. Iranian government is considering increasing import taxes to 70% from already high 40% to encourage domestic production.

The Passenger Cars Segment Holds the Major Share in the Market

The passenger cars segment holds the largest market share in the Iranian automotive industry. The international sanctions have had a tremendous impact on the industrial development of many industries in the country. Iran, which is the largest automotive market in the Middle East with a market of nearly one-third of the German automotive market, has seen volatility in the automotive industry with the implementation of the sanctions.

Eventually, the Iranian automotive industry became self-reliant and self-sufficient to supply for the demand within the country. The country had reached the potential to roll out more than a million vehicles. Ever since the implementation of the sanctions, the demand for vehicles is being met by the vehicles manufactured in the country only.

The sanctions helped the domestic companies, such as IKCO and SAIPA, to emerge in the market, which have a major share of the passenger vehicle sales in the country. At the time of implementation of the sanctions, the percentage share of the indigenous companies of the overall vehicle production reached as high as 85%. However, if the sanctions are relaxed, more international companies are expected to introduce the latest vehicles in the country, which may further drive the market.

Competitive Landscape

The Iranian vehicle market is consolidated. The major players of the Iranian vehicle market are Renault-Nissan Alliance, Brilliance Automobile Group, Chery Automobile, Hyundai Kia Automotive Group, Iran Khodro (IKCO), Lifan Industry (Group), Groupe PSA, SAIPA Group, Toyota Group, VW Group, and Great Wall Motor Company Ltd (GWM). Alliances and joint-ventures are the major strategies adopted by the companies in this market. In October 2017, the Iran Khodro Industrial Group (IKCO) signed a new cooperation agreement with Hyundai PowerTech to meet the domestic and foreign market needs. Hyundai and Kia are one of the major exporters to Iran. In June 2020, the central bank of Iran has set to roll out 2 billion USD to revive the automotive industry from the impact fo COVID-19 and international sanctions.

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