Iran Parliament Passes New Law for Regulating Automotive Sector

EghtesadOnline: The Iranian Parliament on Sunday passed a law on regulating the country’s automotive sector months after a turmoil spiked car prices to unprecedented heights.

News ID: ۷۴۷۳۸۴

21 May 2019

In a talk with Majlis news outlet ICANA, Bahram Parsaei, an MP from Shiraz said, “As per one of the clauses, for each model, carmakers are required to document production costs, profit margin and the vehicle’s final price and deliver the document to the Competition Council.”

If the carmakers fail to comply with this clause, their managers can face a two-year prison sentence.

Of the 227 lawmakers attending the parliamentary session, 149 MPs voted in favor of this clause, 26 voted against and nine abstained, according to Financial Tribune.

Over the past few months, car prices have skyrocketed in Iran just like the costs of many other goods. For instance, the price of the cheapest car made in Iran, SAIPA’s Pride, has more than doubled over the past 12 months to reach 500 million rials ($3,600).

The lawmaker from Shiraz added that one of the issues that Iranian car buyers have for long struggled with has been the low quality of vehicles.

“During the vehicles’ guarantee period [five years], car companies are to be fined for breakdowns caused by faulty parts that lead to traffic accidents,” Parsaei said.

“This is a step toward preserving consumers’ rights. It would also goad carmakers to produce cars with better quality.”

EVs, PHEVs Get a Boost

As per the articles and clauses stipulated in the law, electric vehicles and plug-in hybrid electric vehicles (PHEVs) were exempted from import tax and tariffs.

Parsaei noted that with the introduction of this law, Majlis aims to curb fuel consumption and boost competitiveness, which can help reduce car prices as well.

Hybrid electric vehicles (HEVs) and PHEVs both use an internal combustion engine and one or more electric motors.

The main difference between the two pertains to the engine. In HEVs, the electric motor assists the internal combustion engine, while in the PHEVs, it is the other way round. The latter is more environment-friendly and closer to a full EV.

HEVs get most of their power from the internal combustion engine. When needed, an extra boost of power can be obtained from the electric motor. The power required for the electric motor to work is generated on the go and stored in the battery.

The electric motor also acts as a generator, converting energy from regenerative braking and storing it in the battery. For instance, the most popular hybrid in the Iranian market, Toyota Prius, is an HEV.

PHEVs get most of their power from the electric motor that acts as the primary, while the internal combustion is the backup.

True to its name, PHEV needs a power outlet to get the battery charged to full capacity. The internal combustion engine can charge the battery to some extent.

For long, promoting EVs and PHEVs have been high on the parliament’s agenda. However, critics say that considering the economic headwinds facing the country, the introduction of tax and tariff exemption was untimely.

Over the past year and following the imposition of harsh US sanctions against Tehran, the Iranian national currency, the rial, lost about 70% of its value. The greenback was traded at 139,500 rials in Tehran on Monday morning. It would not have fetched 42,000 rials a year earlier.

So as to preserve Iran’s already depleted currency reserves, the government of President Hassan Rouhani introduced regulations that curbed imports, including an outright ban on bringing vehicles into Iran. Many analysts believe that in the face of auto import ban, cutting tariffs and taxes for EVs and PHEVs is meaningless.

Foreign Joint Ventures

As per the law, the Industries Ministry has also been charged with helping car companies upgrade their facilities by establishing ties between local firms and international automotive companies.

This article has also been slammed as unrealistic by critics. Observers have pointed out that fearing Washington’s wrath, foreign partners of local carmakers cut their ties with Iran.

Renault, Peugeot, Citroen, Volvo, Daimler and Hyundai are some of the automotive firms that withdrew from the Iranian market.

With sanctions taking a toll on Iran’s international banking relations, local car companies can hardly purchase parts from smaller market players and intermediaries.

As a result, the ministry will certain fail to set up any meaningful linkage between domestic and foreign automakers.

Nevertheless, the new law will increase the accountability of main automotive players, but is not expected to lower car prices considerably.